Why Bank of America (BAC) is My Favorite Bank Stock

Bank of America (BAC) is my favorite bank stock right now, and its future looks a lot brighter. The share price could double from here.

Bank of America has underperformed for a number of years in an already-shaky banking sector, with added uncertainty regarding interest rates, economic growth, lending, income generation, and regulation. But the worst is now likely behind BofA (BAC), and investors could begin to warm up to and even chase the stock due to very attractive and deeply-discounted valuations, strong cash flows, a growing dividend, increasing earnings, peer outperformance, and an improving overall environment.

After collapsing during the financial crisis of the Great Recession (2007-2009), Bank of America (BAC) has been stagnant during the economic recovery which followed. Though the stock bottomed in early 2009 and again in late 2011, it has done almost nothing for three years since 2013.

Bank of America (BAC) has underperformed the broad Financials sector (XLF).

BAC is significantly lagging Since the 2007 peak:

BAC is significantly lagging since the the beginning of 2010, with a negative return while Financials (XLF) as a whole are up big:

Now is the time to BUY Bank of America (BAC), and here's why:

VALUATIONS
Bank of America is trading at very attractive valuations, selling at a deep discount likely due to overblown fears. 

The stock is currently trading at a Price-to-Earnings ratio (P/E) of 10 and a forward P/E of 8. Moreover, the P/E ratio has dropped considerably to a low not seen since 2012:

Furthermore, the stock is selling at nearly HALF its Book Value (P/B) and even below its Tangible Book Value (P/TB):

Most Bank stocks have been selling at discounts to Book Value or close because of all of the fear surrounding the sector. But with much of the Financial Crisis and potential hurdles behind us, buying BAC at around half of BV is a steal.


FINANCIAL STRENGTH
Bank of America is fairly solid financially and in many ways stronger now than it was before the Great Recession. 

BAC's liquidity and ability to withstand a slowdown is visible in its Cash Ratio and Quick Ratio:

BAC's Total Current Assets and Total Assets are bigger than Total Current Liabilities and Total Liabilities, and Total Deposits have been growing:

BAC also has a greater ability to cover its Debts, visible in its much lower Debt-to-Equity (Debt/Equity) and Debt-to-Assets (Debt/Assets) ratios:

Add to that a decreased Beta, which signals a decreased volatility compared with the past 5 years:

PROFITABILITY
Bank of America has improved on both its Earnings and its Margins. 

It has been able to grow its Earnings Per Share (EPS):

Margins (Profit Margin & Operating Margin) are positive and also improving:

Net Income (NI) is positive and has been on the rise:

Net Income (NI) by business segment:

CASH FLOWS

Bank of America's cash flows are pointing to a safer, more liquid, and growing company. Usually considered one of the most important determinants of a financially-strong company (or, in the opposite case, an accounting "red flag"), Cash Flow for BAC is mostly a positive factor. 

Free Cash Flow (FCF) is positive. Though it has been volatile, it still looks good:

BAC's Operating Cash Flow (CFO) is positive. Another major "red flag" in the case of negative CFO, Bank of America still has the "green light" because its CFO is positive.

BAC's Cash Flows from Operations (CFO), Investing (CFI), and Financing (CFF). Financing has turned negative, but overall Cash Flows are acceptable.

Cash Flows are important because they can indicate a company's ability and liquidity to weather a slowdown or cover its debts, as seen in BAC's Cash Flow from Operations (CFO) to Current Liabilities ratio:

DIVIDEND

Another good reason to own BAC is the Dividend that pays investors an income stream while they wait. Even better, though the current 1.51% Dividend is still low, it has been growing:

Additionally, as Banks continue to strengthen and overcome the strict regulation which has limited their ability to raise dividends, BAC's dividend might approach its historical level of closer to 4 or 5%:

INSIDER BUYING

Insiders still own only a tiny piece of BAC stock, but their support has grown, as visible in the growing number of shares owned by insiders:

PEER COMPARISON

Bank of America is also attractive when compared to its competitors, not just on an absolute basis.

When compared to companies like Citigroup (C), JP Morgan (JPM), Wells Fargo (WFC), US Bancorp (USB), American Express (AXP) and Goldman Sachs (GS), Bank of America (BAC) has a very attractive P/E Ratio, PEG Ratio, P/S Ratio, and P/B Ratio. In fact, its Price-to-Book (P/B) ratio is the lowest of its major competitors, and far below most of them.

BAC has far more Cash and Short-Term Investments ($167 Billion) than all of its competitors except for JP Morgan:

BAC has strong Revenues and competitive Net Income when compared to the other banks:

BAC has strong liquidity and Free Cash Flow compared to its peers:

BAC has room to grow its Dividend:

Even with the attractive valuations, strong financials, improving business, etc., Bank of America (BAC) has still underperformed most of the Financials Sector over the past two years:

Surprisingly though, since the March 2009 bottom the worst performers have been Goldman Sachs (GS) and Warren Buffett's Berkshire Hathaway (BRK.B):

Bank of America (BAC) is, however, the 4th largest allocation within the Financials ETF (XLF):

TECHNICALS

Bank of America (BAC) has recently seen a sharp drop from ~$18 to $11, with a break below the critical $15 level. The $15 level dates back to 2013, so rising back above it could be difficult but is necessary for the continuation of the uptrend.

On the positive side, even with the overhead resistance, the Relative Strength Indicator (RSI) is trending up and even hinted at a bottom in February with a "positive divergence" in RSI while the stock price made new lows:

Furthermore, the Weekly chart looks excellent as the 50, 200, and 300-week Moving Averages are aligned properly and shorter-term momentum is leading. This Weekly chart will look even better, way better, if BAC can climb back above the 200-week MA.


















Perhaps the rolling 52-Week-Highs and Lows could signal upcoming trend as well:

It is a bit disconcerting that the 52-Week-Low (red line) was violated and is trending down, but if BAC could break back above the $18.48, 52-Week-High (orange line), there is A LOT of upside.

REPUTATION

Bank of America is still one of the biggest and most well-known banks, with a great reputation and plenty of awards. There is plenty of room for improvement, but the brand name is a huge plus. 

Nothing is guaranteed, but think about it this way: If there is another banking or financial crisis, which bank is the US Government most likely to save solely due to its name? 

It also helps to have a leading Wealth Management brand name like Merrill Lynch:

Bank of America (BAC) has been overlooked and its stock is set up for major upside.
It is selling at steep discounts; it sports attractive valuations; it has improved its financial strength substantially; it is profitable; it is growing; it has good cash flows; it has growing insider support; it has strong peer comparisons; it pays a dividend; it has a great brand name; and it has plenty of room to exceed expectations.
Bank of America (BAC) may be the best Bank stock to invest in, and it could double, triple, or more over the next years if it can continue to improve.


Includes: BAC, XLF, JPM, C, GS, USB, BRK.B, WFC, AIG

Gold: Avoid The Trap

Contrary to what most investors and gold buyers believe, the rally we've seen in Gold (GLD)($GOLD) in 2016 is just a counter-trend rally within a multi-year downtrend. Gold is only a few months removed from 6-year lows, and we haven't even truly seen panic and capitulation normally associated with a long-term bottom. Simply put, gold was due for a "bounce" or a "breather" before it can continue its decline. Don't get too excited!

Gold is in the midst of a major long-term bear market, ultimately headed to what I predicted in 2011: $700/oz.

Everyone has already seen the massive collapse which cut gold prices by nearly half, from the September 2011 high above $1900 to approximately $1050 by December 2015. Yet though gold has been performing very well so far in 2016 (already above $1250), it is inevitably doomed to resume the downtrend. My research strongly points to a further decline, including sharp drops and even price crashes as the "Gold Bubble" unwinds.

Though gold is, in our opinion, on its way to $700, it could not do so all at once. Trends and cycles do not exist in straight lines, and gold (like all other bear or bull markets) moves in fits and starts, switching on and off between sharp declines and counter-trend rallies. What matters most, however, is the long-term trend. And though gold bulls are convinced the worst for gold is now behind us, it is exactly this gold bounce or "false recovery" that tricks them into jumping back in right before the next plunge.

Gold could either reverse back to the downside right now or could continue to recover higher, but why buy gold when the upside is limited? If the bounce continues, gold has major resistance at $1300, $1400, $1550, $1600, and $1800; plus it is very unlikely that gold could even break above $1600 for many years to come.

Even if gold does continue higher, there are much better alternatives. Though many would like Gold to be considered a Currency, it has been trading like a Commodity. If commodities continue to recover from their major bear market, you'd be better off investing in Energy (USO)(UCO)(XLE)(UNG), Industrial Metals (AA)(X)(CLF), Coffee, Sugar, and even Platinum. The stock market doesn't look like a screaming buy, but even a simple Index Fund (SPY) could outperform Gold (GLD) going forward.

If you missed the bounce, move on.
This is not a new bull market, just a trap.
Gold is a lose-lose situation and a broken trend.
Don't double down, don't fall for it again, don't be a sucker.

Includes: GLD, GDX, GDXJ, ABX, NEM, GOLD, GG, USO, UCO, XLE, UNG, AA, X, CLF, JO, CAFE, SGG, SPY, DIA, QQQ, UUP

Coffee Prices Set To Rise

Relevant stocks:    $JO $CAFE $SBUX $DNKN $GMCR

Coffee prices have been devastated over the past 5 years, together with much of the overall commodity space, but it appears that a bottom may be in and prices could rise significantly. 

Coffee Prices, 5 year:

Commodity Prices (CRB Index), 5 year:

While Coffee commodity prices have plunged, companies such as Starbucks (SBUX) and Dunkin Donuts (DNKN) have benefitted from the much lower input costs.

Much of the decline in commodity prices has been likely due to a decrease in global demand as well as an overall threat of deflation. Though the threat of deflation, or at least an economic growth slowdown, is very real, the resulting drop in many commodity prices is at this point overdone. The declining prices may be warranted, but after such massive declines a bounce or recovery is needed. This could very well be a long-term bottom in many commodities; but even if it isn't, a "breather" is needed and prices could see a considerable increase. 

Zooming into a 1-year daily chart of Coffee, we can see a long, downward trend-channel:

Coffee prices have been stuck in a downtrend, tightly within a "channel". In order to break out into an uptrend, prices have to forcefully rise above $130. If Coffee prices "break out" above the $130 upper trendline, they could go much higher. 

Rock and Roll is NOT Dead

Rock & Roll is NOT dead!

Quite the opposite, I predict that Rock music is about to become a lot more popular.

It is true that Rock music has been in a decade-long (or longer) decline. The glory days of Rock&Roll are no doubt behind us - Elvis, Rolling Stones, Led Zeppelin, The Beatles, Pink Floyd, Queen, AC/DC, Guns N Roses, Metallica, Nirvana, etc etc.

Many mourn the loss of their favorite music genre and it's legendary artists and bands.

This is the failing of the digital age: we are no longer creating any new rock heroes. The days of the titans are gone. Music stores are bankrupt, MTV is dead, a world tour no longer means anything when you can watch it on YouTube for free.

Source: Houston Press

The Decline of Recorded Music Sales

Technology and the changes in the music industry are definitely partially to blame for Rock Music's decline, as making money from album/song sales has become increasingly harder. Some would call it the "Napster effect":

Bands and artists have increasingly relied on Tour revenues rather than Album sales. Concerts and live performances is where the money is right now:

Source: http://seatsmart.com/blog/concert-tickets-vs-album-sales/





The "Golden Age" of Rock music is long gone, but an uptrend in Rock music's popularity is already underway. Rock & Roll is NOT dead, and here's why:

1) Gene Simmons (KISS) and the "CAPITULATION BOTTOM"

From my research, I have noticed that major reversals in long-term trends usually coincide with either a "blow-off peak" or a "capitulation bottom". This means that the end and beginning of a major trend is filled with frantic over-excitement (peak) or depressing over-pessimism (bottom).
In other words, when everyone likes something, a peak is near; and when everyone hates something or has no faith in its future, a bottom could be near.

In the case of Rock Music, we may have already seen the "capitulation bottom".

Gene Simmons: 'Rock Is Finally Dead'

In a September 2014 Esquire interview, Gene Simmons (formerly of legendary band, KISS) declared the death of Rock Music.

To be fair, KISS wasn't the best-selling or most-popular band of its time, but Gene Simmons is enough of a Rock icon that his comments drew lots of attention. KISS did, after all, sing the well-known song "Rock and Roll All Nite".

The second I heard Gene Simmons declare Rock Music dead, I instantly thought of the "capitulation bottom". Especially considering his comments garnered a response from other top Rock bands, this was not only a heated and emotionally-charged debate, but potentially a major turning point.

It’s a phrase that gets thrown around a lot. It’s a phrase that gets people riled up. Epic social media arguments start over it. Friendships end over it. It’s an emotionally charged subject for a lot of people.

Source: http://varla.com/rock-and-roll-is-dead/


The Foo Fighters chimed in, "not so fast":

Aerosmith guitarist, Joe Perry:

“I think that that era of rock bands playing to sold-out arenas and selling millions of records in a pop — yeah, that part of it is dead.”

“When we started, being in a rock band was one step away from being an outlaw. No one ever said, ‘Oh good, you’re playing in a rock band, how wonderful!’"

Source: http://ultimateclassicrock.com/joe-perry-gene-simmons-rock-is-dead/ 

Twisted Sister frontman, Dee Snider:

While I have nothing but respect for Gene, he couldn’t be further off the mark. Yes, the rock ‘n’ roll “business model” that helped Kiss (and my band for that matter) achieve fame and fortune is most certainly long dead and buried, but rock ‘n’ roll is alive and well and thriving on social media, in the streets, and in clubs and concert halls all over the world. And the bands playing it are more genuine and heartfelt than ever because they are in it for one reason: the love of rock ‘n’ roll.

Spend some time seeing and listening to these incredible young bands and their rabid fans and you will know that rock ‘n’ roll couldn’t be more alive. Yes, it’s not the same as it was for the first 50 years of rock’s existence, but the fire definitely still burns.

Source: Dee Snider Responds to Gene Simmons' 'Rock is Dead' Claim

Even CNN discussed and acknowledged it:
http://www.cnn.com/2014/09/08/showbiz/music/rock-is-dead-gene-simmons-esquire/

See also:
http://www.spin.com/2014/09/gene-simmons-rock-is-dead-foo-fighters-esquire-interview/
http://www.rollingstone.com/music/news/gene-simmons-rock-is-finally-dead-20140907
http://www.musicthinktank.com/blog/how-technology-killed-rock-and-roll.html
http://www.nme.com/blogs/nme-blogs/why-is-everyone-so-obsessed-with-the-death-of-rocknroll
http://www.aux.tv/2014/01/rock-n-roll-is-dead/
http://www.debate.org/opinions/is-rock-music-dead

2) Rock Stars Are Getting Old, Time for Rebirth

The Rock Music genre is being led by old people.
Unlike pop music, led by the young:

As always, the Grammys were peppered with plenty of promising young music stars, like Best New Artist winner Sam Smith, 22, who also won Song of the Year and Record of the Year; and Best Country Album winner 31-year-old Miranda Lambert. Performers included Beyoncé Knowles, already living legend at 33, with Katy Perry, 30, Rihanna, 26, and Ariana Grande, 21, not far behind. And music's most promising star is, of course, 25-year-old Taylor Swift, who did not need to perform to make her presence felt.

Notice anything about that list of up-and-comers? None them has ever even attempted to strap on a Les Paul and just freakin' rawk out.

Source: http://mashable.com/2015/02/09/millennials-rock-n-roll-old-grammys/#2FSQa7v.VSqQ

When it comes to Rock:

The average age among all the 2015 Grammy nominees in the four rock categories was roughly 46.

Everyone keeps looking at the old-timers and legendary bands for leadership, but it's time for new leadership and new music led by a new generation!

AC/DC singer is 67, Paul McCartney is 72, Mick Jagger is 72, Bruce Springsteen is 66, and so on.

Rock & Roll is ready for a revival and rebirth. This doesn't mean that the new Rock will sound exactly like the old Rock Music we're used to, but it is definitely highly influenced by it.

Sure, the music industry might look different today than it did forty years ago, but that’s not necessarily a bad thing...Rock music was reborn once more with the alternative scene in the early nineties. 

 Source: http://www.gibson.com/News-Lifestyle/Battle-of-the-Fans/en-us/Rock-n-Roll-is-NOT-Dead.aspx

The new generation of Rock & Roll will be innovative, exciting, and maybe even wildly popular.


3) New Rock Music is For The Love

The major decline in Rock Music has brought about a positive outcome: With rock music not being the lucrative field it used to be, those who write, play, and perform Rock Music are doing it "for the love of rock and roll". This means more passion, and potentially better quality.

Once the music is forced underground, it narrows the scope of the field. In the end, you’re left with a small percentage of the bands that keep themselves together and keep going. No matter what. Not for a paycheck. Not for fame. They do it for the love of the craft. When you remove quantity, you’re going to be left with quality.

Source:  http://varla.com/rock-and-roll-is-dead/


4) Google Trends Points to Renewed Interest


Though it is clear that the popularity of Rock Music has declined dramatically over the years, it might have already begun to rise. After a long lull, interest in Rock Music may have bottomed.

Looking at Google Trends dating back to 2004 (as far back as it goes), we can see the decline in search for "Rock music". However, after the big drop in interest, it appears that a bottom was formed between 2013-2015:

Just as Gene Simmons declared Rock to be dead, the bottom was actually forming.

Even better, there has recently been a significant rise in interest since 2015, and this may be the beginning of a major long-term uptrend in Rock Music.

Just in case the Google Trends chart doesn't quite show the massive decline in Rock, look at the huge decline in Rock Music (dark green) since the 1970s:

While Rock Music has seen a giant decline, music genres like EDM or Electronic Dance Music have seen a huge rise in popularity:

Moreover, Rock Music is not the only genre that has declined in popularity. Hip Hop and Jazz appear to have declined and Country has been volatile. Pop Music is the only one with an increase.

However, while the declining popularity of Rock and Jazz have been brutal, both seem to have made the turning point within the past year. Both genres' popularity is now trending up, and this could be the beginning of the next uptrend.


Rock Music is Coming Back

One day soon we will see huge headlines about Rock Music, how it came back from the dead, and how enormously popular it is becoming once again. 

The new generation of Rock & Roll is either already here or on its way. 
Most legendary bands are already long gone; some, like AC/DC and Bruce Springsteen are still performing; others, like the Rolling Stones and Guns N Roses have planned comeback tours or special concerts. Regardless, these old-timers were an inspiration to millions and will soon pass the torch to the next wave of Rock Music legends. 

Perhaps right now a giant Rock & Roll festival doesn't sound like it would be such a successful venture. And maybe the glory days of Woodstock 1969 will never be recaptured.
But if Rock & Roll is truly undergoing a period of revival, Woodstock 2019 (50 year anniversary) could be a big hit. 

Perhaps it is exactly during these desperate times for Rock Music that a revival and great progress is made:

The really interesting things in rock ‘n’ roll only seem to happen when almost nobody is paying attention.

Source: http://www.popmatters.com/column/176052-the-state-of-rock/