Stocks to sell

Don’t ‘Buy the Dip’ With Bank of America Stock

The recent banking crisis has pushed Bank of America (NYSE:BAC) to new multi-year lows. At current prices, BAC stock hasn’t been this cheap since late 2020.

Compared to this leading financial institution’s forecasted 2023 earnings ($3.45 per share), as well as its book value ($30.61 per share), I can see why many contrarian investors are tempted to pounce on this blue chip after this latest bout of weakness.

However, despite appearing to be a deep value play on a stock screener, keep a few things in mind. The fallout from recent bank meltdowns could continue to place pressure on BofA. Other issues, not directly tied to the aforementioned crisis, may affect the bank’s operating performance as well in the near-future.

With all of this in mind, rushing into a position may not be the best move.

BAC Bank of America $27.69

BAC Stock and its Recent Sharp Sell-Off

It’s been a rough past few weeks for the banking sector. So far this month, Silicon Valley Bank, owned by SVB Financial Group (NASDAQ:SIVB), Silvergate Capital’s (NYSE:SI) Silvergate Bank, and Signature Bank (NASDAQ:SBNY), have failed.

First Republic (NYSE:FRC) hasn’t failed, but it has been facing severe liquidity issues, requiring a deposit infusion from a consortium of major banks that included Bank of America.

This banking crisis has also worsened an already-challenging situation for Credit Suisse (NYSE:CS). Through a government-brokered deal, Swiss peer UBS Group (NYSE:UBS) is now set to buy it, in a “take under” transaction.

With this maelstrom, it’s not surprising BAC stock has experienced a sharp price drop this month. Trading in the mid-$30s per share on Mar 1, this bank stock now trades in the high-$20s per share. Given the indirect impact of this crisis on this bank, some investors may view this pullback as an overreaction and a prime buying opportunity.

However, while it’s mainly smaller, more regionally focused banking institutions that have been on the brink lately, that doesn’t mean Bank of America will come out unscathed following these recent events.

Why the Crisis Could Still Have a Negative Impact

Besides high confidence that BofA can survive the 2023 banking crisis, some investors bullish on BAC stock may also believe that this bank will benefit from this meltdown.

Following the collapse of Silicon Valley Bank, corporations and high net-worth individuals that previously banked with the failed institution may opt for larger, “too big to fail” institutions such as Bank of America. This crisis could also result in a banking consolidation wave, which in the end could make institutions like this one more profitable and valuable.

Yet for now, a likely worsening crisis is a negative for the stock. There may not be serious trouble ahead for Bank of America, but like I mentioned above, a continued crisis will probably place more pressure on BAC shares.

As Morningstar analyst Eric Compton has argued, BofA has an above-average capital risk compared to other money center banks.

Alongside this, even with the bulls savoring over potential market share gains/accretive acquisitions, if Bank of America acquires/bails out struggling firms (as some, like investor Bill Ackman, are currently speculating will happen), this too could place more near-term pressure on shares.

The Best Move Now

Other risks besides the banking crisis may impact the price performance of BAC in the near-term. As credit rating firm Fitch argued back in January, numerous factors related to the changing economic environment stand to weigh on bank profitability throughout the year.

BAC may trade for around eight times forward earnings, but analysts have already trimmed their forecasts in recent months. Considering the economic slowdown and the banking crisis, BAC’s current valuation discount makes sense.

Don’t get me wrong. Once the dust settles on this situation, this stock could once again become a strong buying opportunity. The issue is that we are not there yet.

Given how easily this could turn into a “catch a falling knife” situation for those trying to call a bottom today, consider playing it safe with BAC stock to be your best move.

BAC stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier had a long position in BAC. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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