MARKET VALUE: $266.5 billion
DIVIDEND YIELD: 2.5%
We’ve heard a lot lately about the inverted yield curve, where short-term interest rates are above long-term interest rates. This can hurt traditional banking companies, which rely on borrowing money at lower rates to lend out to businesses and individuals at higher rates.
However, the likelier it seems that the Federal Reserve will lower short-term rates in the near-term, the likelier that curve may return to its normal configuration. That’s good news for out-of-favor banks.
David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business, recommends Bank of America (BAC, $28.63) to investors seeking out cheap stocks to buy. Its forward-looking P/E of around 9 is its lowest in years, and half the S&P 500 average.
BofA has improved its earnings per share steadily every year since 2014. Earnings per share (EPS) have increased steadily every year since 2014, and in fact roughly doubled from $1.31 per share in 2015 to $2.61 last year. Analysts expect EPS to improve by high single digits in each of the next two years.
Bank of America also gets a vote of confidence from Warren Buffett’s Berkshire Hathaway (BRK.B). BofA is Berkshire’s second-largest holding, with a 927 million-share stake worth roughly $27 billion.