The banking industry isn't doing as well well in 2020, however where will this huge bank be in ~ the end of 2021?


Matt is a Certified gaue won Planner based in southern Carolina who has actually been writing for The Motley because 2012. Matt specialization in writing about bank stocks, REITs, and an individual finance, however he loves any kind of investment in ~ the best price. Follow him top top Twitter to keep up through his recent work!Follow

Despite the recent rise in COVID-19 cases, ongoing elevated unemployment, and also lack of financial stimulus, the share market has actually rebounded unique from that 2020 lows. In fact, even after the recent market decline, the S&P 500 is still greater for the year.

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However, the jae won sector has actually been a major laggard. Together of Nov. 2, the Financial choose Sector SPDR ETF (NYSEMKT:XLF) was still under by much more than 20% year-to-date. Plenty of of the best U.S. Banks are doing also worse, in terms of their stock prices. Bank of America (NYSE:BAC) is among the many improved financial institutions in the U.S. In the te or so because the jae won crisis, yet with a 32% decrease this year, what must investors mean over the following year and also beyond?


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Where bank of America is now

As mentioned, the financial sector hasn"t precisely been terrific performer in 2020. No only have actually record-low interest rates made the more complicated for financial institutions to do money, yet elevated unemployment could lead to a wave of loan defaults, resulting in billions of dollars in potential losses.

In the third quarter, financial institution of America"s revenue declined by 11% year-over-year v a 17% decline in network interest revenue (NII) sustained by low attention rates, counter by solid investment banking performance (which often tends to do well in volatile markets).

However, it"s worth noting the aside native the present affects that the pandemic, financial institution of America has actually been doing very fine in current years. The agency has arised as a leader in mobile and also online banking functionality and also has substantially improved efficiency and profitability. Because that the full year of 2019, financial institution of America produced a 11.3% return on equity (ROE), 1.21% return on heritage (ROA), and a 58% efficiency ratio -- and also numbers prefer these would have seemed unthinkable for the financial institution just a few years prior.

Plus, bank of America has actually rapidly become Warren Buffett"s favorite financial institution stock. In one of Berkshire Hathaway"s (NYSE:BRK.A)(NYSE:BRK.B) first pandemic-era investments, Buffett and his team spent over $2 billion including to that already-massive position, now owning around 12% the the bank.

Unanswered concerns that will certainly determine bank of America"s performance

There room literally thousands of things (if not more) that could influence bank of America"s share price end the next year. However here are some of the many important:

Vaccine availability: in ~ this point, it"s quite clear that the U.S. Economic climate won"t be able to truly get ago to common until a COVID-19 vaccine is not only approved, but is extensively available. As soon as this happens, bank investors will likely breathe a sigh that relief, yet the time of such an occasion is a huge question mark.Unemployment and stimulus: Unemployment continues to be elevated and also (so far) congress has been unable to agree on a stimulus package to help people with the pandemic. If economic stimulation is passed, or unemployment starts to significantly improve, it might be a large positive catalyst for bank of America.Overall stock market conditions: mental that financial institution of America isn"t simply a commercial bank, however has a large investment banking procedure as well. Therefore, it is very dependent top top things choose equity and also debt underwriting, M&A advisory revenue, and also trading.

The buzzpatterson.comish bottom line

Nobody has a crystal ball that deserve to tell girlfriend where any kind of stock will certainly be in a year, and also I"m certainly no exception. However, bank of America is a solid and well-run college that has dramatically improved its legacy quality and business efficiency over the previous decade, and nothing that has actually happened or will happen is walking to adjust that. Financial institution of America"s share price could be reduced in a year or it can be much greater -- yet over the long run, I"ve invest a substantial amount the my own money in my id that financial institution of America will certainly generate excellent returns.

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This write-up represents the opinion of the writer, who might disagree v the “official” recommendation position of a Motley stupid premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps united state all think critically about investing and make decision that help us come to be smarter, happier, and richer.
Matthew Frankel, CFP own shares of financial institution of America and Berkshire Hathaway (B shares) and also has the complying with options: brief January 2021 $23 place on bank of America. The Motley own shares of and recommends Berkshire Hathaway (B shares) and also recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 call on Berkshire Hathaway (B shares). The Motley has a disclosure policy.


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