Daily Stock Pick: March 23rd, 2022

Stocks ticked lower this morning as investors processed comments from Fed Chair Jerome Powell that reinforced the Fed’s willingness to take a more aggressive stance in the fight against inflation.  

“The labor market is very strong, and inflation is much too high,” Powell told the National Association for Business Economics.  “If we conclude that it’s appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”

Wall Street strategists expect a bumpy road ahead for stocks as the Fed tightens its policy.  The median year-end target for the S&P 500 now stands at 4,900, down from 5,100, representing a gain of only 8% from yesterday’s close.  

Today we’re discussing a stock that is likely to do well as the Fed steps up its offense against surging inflation.  

Bank of America Corporation (BAC) provides banking and financial products and services for individual consumers, institutional investors, large corporations, and governments worldwide. It operates through the following segments: consumer banking; global wealth & investment management; global banking; and global market segments.

Thanks to its global investment banking and financial services portfolio, most are familiar with this financial titan.  In the U.S., BAC currently operates via 4,300 retail financial centers, 17,000 ATMs, and digitally serves 41 million active users. Furthermore, the company is also present in 34 other countries across the globe.

After more than doubling since its pandemic-era low, let’s look at the factors that could boost BAC going forward.  For one thing, the Fed has signaled up to 11 rate hikes through the end of next year. The fed funds rate is now expected to peak at 2.75% to 3% by September 2023.  This should help BAC increase its interest income.  Zooming in a little closer, according to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion this year.    

“We think Bank of America and the industry as a whole will have the best growth in that category [traditional banking revenue] in over three decades, and that’s super-powerful,” said Wells Fargo analyst Mike Mayo. “And it’s even more in place after the news from the Fed yesterday, when they announced they’re going from six rate hikes through the end of next year up to 11.”

Jim Cramer recently cited Bank of America as one of the potential beneficiaries of rising rates.  He thinks that BAC will, “make a killing if the Federal Reserve is forced to tighten.”

If you need another reason, consider BAC’s uninterrupted 21-year history of rewarding investors through dividends.  The company recently raised its quarterly dividend to $0.21 per share, up 16.7% from the previous quarter. 

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