Summary
- Trade war concerns have weighed on stocks lately.
- Bank of America is at risk of dropping further on the back of weak net interest income growth and growing economic risks.
- Bank of America's shares are priced at a premium to accounting book value.
- Negative trade war developments and/or slowing growth on the back of new tariffs will hurt Bank of America.
Bank of America's (BAC) shares do not have an attractive risk/reward ratio for investors even though the bank's share price has dropped from ~$31 at the end of April to ~$28 today. The reason: The trade war between the U.S. and China escalated significantly in May, and new tariffs have a high chance of negatively impacting economic growth and earnings projections for U.S. companies. Bank of America's shares have continued downside in a weak market, and I expect the bank's shares to drop back to the $25 price level.
Bank Of America - Risks To Loan Growth And Weak Net Interest Income Growth
If you remember, there were two key takeaways for investors from Bank of America's first quarter earnings release in April.
1. The bank has been doing a good job in terms of growing its core loan business. Bank of America’s (average) loans and leases grew 4 percent year-over-year, which included 3 percent consumer loan growth and 4 percent commercial loan growth.
Backed by strong economic fundamentals in the United States, both deposits and loans have been growing for Bank of America.
