Do you have $ 1,000? Here is 1 great stock to buy and keep

End the year with a little more money than expected, but don’t feel like putting that money back into the quick trading carousel? You are not alone and you are in luck.

While it certainly looks like the ongoing market rally since March 2020 has pushed every ticker towards overvalued valuations, there are a few notable exceptions. More importantly, these exceptions are not mere short-term speculation; they are designed from the outset to be buy and hold positions.

Image source: Getty Images.

Some of the best names worthy of the unused money in your wallet are Bank of America (NYSE: BAC). Indeed, its simplicity is one of the main reasons why it is so attractive here. Investors can take comfort in knowing that the business will look roughly the same three years (or three decades) from now as it does today, as consumers and businesses will always need help managing their money.

Bank of America is not just a lender

Boring? You bet. But that’s the point. While you may be hoping for short term fluctuations with your more aggressive speculative choices, this is the kind of drama you are trying to achieve. to avoid with your long-term holdings. Above all, you want reliability. Bank of America has it.

Of course, this is in banking at a time when being a bank is generally bad news. Industry profitability on loans is directly related to interest rates; the higher the rates, the more profitable the loans. The federal funds rate has hovered just above zero since the start of last year, making loans unprofitable despite strong demand for loans.

Bank of America is not just a lender, however. In fact, before COVID 2019, before interest rates collapsed again, the company’s interest income (mostly driven by loans) was just over half of its turnover. The remainder came from non-interest services like credit cards, investment banking fees, and brokerage services.

A resilient cash dispenser

The onset of the pandemic last year obviously took a toll on all of its interest-free activities, and the sharp drop in interest rates (as you might expect) reduced net interest income.

Except as much as you might think. The bank’s interest-based net income slipped only from $ 48.9 billion in 2019 to $ 43.4 billion in 2020, a 12.6% lull that was not compounded by a contraction of the other profit centers of society.

That’s not to say he just went through the disruption of the pandemic. Bank of America’s return on average tangible common equity (ROTCE) in 2020 fell from 14.9% to 9.5% in 2019. Its average return on all assets fell similarly from 1.14% to 0.67%. These are important metrics simply because they illustrate the efficiency with which a bank uses the assets it has recorded on its books. A contraction of this magnitude rightly raises eyebrows.

But during the first three quarters of the current fiscal year, the bank’s return on its assets rose to 1.1%; The ROTCE goes up to 17.6%. Likewise, money to cover bad debts in the third quarter of last year was reduced by $ 2 billion in the third quarter of this year, with the worst-case scenario never really taking shape. Its customers’ total deposits and balances also hit record highs last quarter, underscoring the idea that Bank of America completely ignored any impact COVID-19 was going to have.

All this testifies to the quality of the management of the bank and that of its customers. You can buy this stock at a modest 14 times the expected earnings for next year – which analysts say will continue to grow, in step with sales growth.

Bank of America is expected to grow firmly to emerge from the pandemic lull.

Data source: Thomson Reuters. Chart by author. Revenue data is in millions of dollars.

Its current dividend yield is 1.9% and it has paid a dividend quarterly for the past two decades. And while it hasn’t steadily increased its dividend on an annual basis, it has nearly tripled its quarterly payout over the past five years.

Don’t complicate matters

Again, it’s boring, but again, boring stocks are great long-term fundamental holdings. This one is no exception, especially if you are an income oriented investor.

That being said, Bank of America could be on the verge of catching a major tailwind that will lead to big, non-annoying gains early on for newcomers. Federal Reserve Governors collectively believe they will need to raise the fed funds rate from less than 0.25% now to over 1.75% by the end of 2024, with a few more rate hikes in the cards after that. Assuming that subsequent increases in loan interest rates don’t wreak havoc on the economy (and there is no reason to fear they will), each of these increases will make Bank of America’s lending business more profitable than they have been in recent times. It can also be safely assumed that the company’s paid services and activities will continue to grow as they have.

Stock is a smart place to park long term cash that you don’t want to have to worry about. The trick is to just leave it alone long enough to allow time to do its job.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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