We recently published a list of 10 Cheap NYSE Stocks To Invest In Now. In this article, we are going to take a look at where Bank of America Corp. (NYSE:BAC) stands against other cheap NYSE stocks to invest in now.
The stock market appears poised for another year of impressive returns, likely extending into 2025. However, concerns about high valuations persist. To gain insight into this, Aswath Damodaran, professor of finance at NYU Stern School of Business, recently joined CNBC’s ‘Closing Bell’ on December 14. Damodaran recognized that it’s tough to keep up after two years of returns over 25%. He mentioned that if the market stays stable until the end of the year, it would be similar to the high points seen in the 1950s and mid-1970s. However, he was doubtful about being able to keep this strong performance going, as it’s challenging to continue rising after such big gains.
When asked if the market is overvalued, Damodaran said that while prices are high, they haven’t reached the level of a bubble yet. He compared the current situation to the late 1990s but clarified that he doesn’t plan to sell all his investments. Instead, he is hesitant to invest cash right away because staying in cash might mean losing out on potential gains. He also mentioned that while there may be limited growth in price-to-earnings ratios in 2025, there could still be good returns due to better-than-expected earnings growth from new government policies. Damodaran believes that a return of 8% to 10% would be satisfactory for him, as he prioritizes preserving wealth over aiming for very high returns.
The US stock market currently presents a mixed valuation picture. According to Morningstar, Large growth stocks have experienced significant price appreciation. However, their current valuations may not fully reflect the inherent risks associated with high growth expectations and potential competition. Consumer defensive stocks tend to be less volatile during economic downturns, but the current valuations may be inflated due to a perceived safe-haven status. Utilities may be currently overvalued relative to their historical performance and future earnings potential as interest rates rise. The industrial sector may be overvalued due to concerns about potential economic slowdowns and rising input costs, although some sub-sectors may offer value.
Conversely, the communication services sector may present attractive opportunities for investors. While facing challenges such as increased competition and regulatory scrutiny, certain companies within this sector may be undervalued relative to their long-term growth prospects. The energy sector has experienced significant volatility in recent years. However, with increasing global energy demand and ongoing geopolitical uncertainties, certain segments of the energy sector may be undervalued at current prices.
Markets are constantly evolving, influenced by various factors such as economic growth, interest rates, and geopolitical events. Damodaran’s insights reflect a cautious view of market prospects heading into 2025, emphasizing careful investment strategies amid high valuations.
Methodology
We sifted through the Finviz stock screener to compile a list of the top NYSE-listed stocks. We then selected the 10 stocks with a forward P/E ratio under 15 that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024.
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 Corp. (NYSE:BAC)
Current Forward P/E as of December 16: 12.44
Number of Hedge Fund Holders: 98
Bank of America Corp. (NYSE:BAC) is a financial services provider that offers a range of solutions to individuals, institutions, and governments. These services include banking, investing, asset management, and risk management. Its subsidiaries include Merrill, BofA Securities, and Bank of America Private Bank.
Its recent success is attributed to its Consumer Banking segment. The bank added 360,000 net new checking accounts during Q3 2024, marking 23 consecutive quarters of such growth. The segment showcased impressive customer engagement, with 48 million active digital users logging in over 3.6 billion times in Q3. This translated into 54% of consumer sales originating through digital channels.
Investment balances for consumer clients in this segment also surged 28% year-over-year to a record $497 billion, driven by strong inflows of $29 billion over the past 12 months. These factors have together emerged as the key drivers of Bank of America Corp.’s (NYSE:BAC) success.
Diamond Hill Capital stated the following regarding Bank of America Corporation (NYSE:BAC) in its Q2 2024 investor letter:
“Other top contributors in Q2 included Bank of America Corporation (NYSE:BAC) and Extra Space Storage. Shares of financial services company Bank of America rose in the quarter as it looks increasingly likely net interest income will inflect and begin growing again in 2024’s back half and into 2025.”
Overall, BAC ranks 3rd on our list of cheap NYSE stocks to invest in now. While we acknowledge the growth potential of BAC, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.