We recently compiled a list of the 10 Best Credit Card Stocks to Buy Now. In this article, we are going to take a look at where Bank Of America Corporation (NYSE:BAC) stands against the other credit card stocks.
The market for credit card issuance services has expanded significantly over the last several years. At a CAGR of 9.2%, it will grow from $478.09 billion in 2023 to $522.22 billion in 2024, according to the Business Research Company. Over the coming years, a significant expansion in the market size for credit card issuance services is anticipated. At a CAGR of 8.3%, it will increase to $717.7 billion in 2028, as per the research. Contactless payment usage, data security concerns, cryptocurrency emergence, embedded finance, customization, and personalization are all factors contributing to the growth in the projection period.
The credit card market is still changing, mirroring changes in customer preferences and general economic conditions. According to the Q4 2023 Quarterly Credit Industry Insights Report (CIIR), the average credit card debt per borrower at the end of 2023 was $6,360, a 10% rise YoY. This resulted in a total of $1.13 trillion in credit card debt in the United States the same year. Moreover, the average amount owed by households in the 90th percentile is $11,210, with higher-income households often having larger loads.
According to TransUnion, credit card usage continues to rise, with 167.2 million users expected by mid-2023, representing a substantial rise over the last three years. Furthermore, according to the Federal Reserve Bank of San Francisco, credit cards accounted for 31% of all payments in 2022, although less than 10% of Americans typically utilized cash, according to a December 2023 Forbes Advisor survey.
As per the Federal Reserve Board, credit card delinquency rates have been rising gradually and will reach 3.1% by the end of 2023, the highest level since 2011. Additionally, charge-offs rose in Q2 2024 from 4.16% to 4.38%, a record high of 12.5 years that hasn’t been seen since Q4 2011. Meanwhile, according to Forbes Advisor, the average credit card interest rate in March 2024 was 27.89%, putting financial strain on people with balances.
In the future, digital payment methods are expected to gain popularity; according to a survey conducted in August 2023, more than half of customers preferred digital wallets over traditional cards. This change shows that credit card companies will continue to innovate, even as concerns about interest rates and debt levels persist.
Overall, as we have also mentioned in our article, “7 Best American Bank Stocks To Buy According to Hedge Funds,” the U.S. market for digital banking platforms was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031.
Looking forward, according to a report, credit card spending is predicted to increase in the mid-single digits by 2024, while balances will fall to the mid-to-high single digits after a substantial rise since 2022. If labor markets are steady, credit performance measures are expected to decline during 2024 and stabilize by early 2025. Despite lower inflation, key problems include resumed student debt payments, high interest rates, and growing living costs.
Yanni Koulouriotis, CFA, Vice President – Global FIG stated:
“Overall, DBRS Morningstar expects a less favorable operating environment for credit card issuers in 2024 as consumer dynamics shift and are less of tailwind to credit card issuer performance. While we expect weaker financial performance in 2024 compared to 2023, we still expect performance to be supportive of current credit ratings.”
Methodology:
We sifted through holdings of credit card ETFs and online rankings to form an initial list of 20 credit card stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stock’s market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A professional banker providing consultation to a customer in the security of his office.
Bank Of America Corporation (NYSE:BAC)
Number of Hedge Fund Investors: 92
After years of hardship and the 2008 financial crisis, Bank Of America Corporation (NYSE:BAC) is currently the second-biggest commercial bank in the United States in terms of total assets.
The bank is among the top four credit card issuers and acquirers in the United States, has a strong commercial banking franchise, and is a Tier 1 investment bank.
The four main business segments of BAC are Global Banking, Global Markets, Global Wealth & Investment Management (GWIM), and Consumer Banking. BAC offers a wide range of banking and nonbank financial services and products while lowering the risk connected with market downturns by diversifying its business.
Bank of America Corporation (NYSE:BAC) reported higher-than-expected earnings for the second fiscal quarter of 2024, owing to excellent performance in its investment banking segment as well as solid net interest income. The share price increased by more than 5% YoY as a result of the earnings report, reaching a peak not seen since the start of FY 2022.
In Q2 2024, total credit and debit spending of $243 billion was 3% YoY. In terms of credit cards, the average outstanding loan totaled $99 billion, consistent with Q1 2024 and up from $94.4 billion YoY. The net charge-off ratio was 3.9%, up from 2.6% last year and 3.6% in Q1 2024. During Q2 2024, 72% of credit card sales were digitally enabled, a rise from 70% last year. Hence, digital channels have provided Bank of America with opportunities for ongoing expansion, particularly in the area of credit card spending.
ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
BAC is one of the Best Credit Card Stocks to Buy Now since it has promising growth potential. As seen by 19 analysts, BAC has a consensus Buy rating with an average price target of $42.39 and an upside potential of 5.61% from the current stock price.
Warren Buffett’s Berkshire Hathaway is the largest shareholder in the company, with 1,032,852,006 shares worth $41.08 billion.
Overall BAC ranks 4th on our list of the best credit card stocks to buy. While we acknowledge the potential of BAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.