We recently compiled a list of the 10 Best Financial Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Bank Of America Corporation (NYSE:BAC) stands against the other best financial stocks to buy according to hedge funds.
According to the Business Research Company, the market for financial services has expanded significantly in the last several years and is further expected to grow at a compound annual growth rate (CAGR) of 7.7% in the next few years.
The year 2024 was remarkable for the financial sector, as seen by the Financial Sector Index, which rose over 30% as of mid-December and outperformed the broader market by almost 5 percentage points. This expansion came after worries over mid-sized bank failures in early 2024, which turned out to be isolated events rather than a problem affecting the entire industry.
As of January 7, 2025, the market’s financial sector produced returns of 5.51% over three years, 9.68% over five years, and 9.49% over ten years. These numbers, however, pale in comparison to the sector’s remarkable success during the previous 12 months, which saw a return of 28.01%.
Looking forward, according to Fidelity’s report, the financial industry’s prospects for 2025 seem promising, backed by consistent economic expansion in the United States. It is projected that the Federal Reserve’s move to rate decreases in the second half of 2024 will boost confidence and lower credit risk. Falling rates have the potential to boost lending and deposit growth while also reducing net interest margins.
As per Fidelity analyst Matt Reed:
“Lower rates boost economic momentum, benefiting banks and payment processors alike.”
Banks that are well-diversified and have solid fundamentals are better equipped to handle a soft landing situation. Sensitive to consumer spending, payment processors are likewise poised for expansion as more accommodating monetary policy and strong consumer activity coincide.
Risks still exist, though. As per the aforementioned report, if the economy weakens, some lenders may face difficulties due to their exposure to commercial real estate and possible nonperforming loans. Nonetheless, financials start 2025 with significant momentum due to a less stringent regulatory agenda following the election and more prospects for mergers and acquisitions.
Michael Kantrowitz, chief investment strategist at Piper Sandler stated:
“I think investors have rotated a little bit out of some of the big tech companies and into the big financial companies,”
He claimed that while a lot of optimism about artificial intelligence (AI) is priced into tech businesses, some investor movement made sense since the rate environment has improved for bank earnings.
Deloitte’s 2025 banking and capital markets outlook report states that banks can strengthen their basis for sustainable growth with creativity and discipline as the banking industry adjusts to a low-growth, lower-rate environment. According to the report, the baseline scenario for economic growth in 2025 is projected to fall to 1.5%, with possible deviations between 1.0% and 1.9% due to slowing consumer spending, greater unemployment, and sluggish business investment. By Q2 of 2024, consumer debt had risen to $17.7 trillion, and by March 2024, savings from the pandemic had been spent, further straining the economy. Inflation is forecast to be around 2%, allowing for three to four rate cuts, bringing the federal funds rate down to 350-375 basis points. Treasury yields are projected to fall, and following two years of inversion, the yield curve may normalize. With the exception of economies that are under pressure, global central banks will likely choose to cut benchmark rates.
A professional banker providing consultation to a customer in the security of his office.
Methodology
We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks.
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).
Bank Of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 98
One of the Best Financial Stocks, Bank Of America Corporation (NYSE:BAC), has over $3.0 trillion in assets, making it one of the biggest financial institutions in the US. It is divided into four primary categories: consumer banking, global wealth and investment management, global banking, and global markets. The consumer-facing business segments of the company comprise its branch network and deposit-gathering operations, retail lending products, credit and debit cards, and services for small businesses. Both the firm’s private bank and Merrill Lynch operations offer wealth management and brokerage services. Investment banking, corporate and commercial real estate loans, and capital markets operations are all wholesale lines of business. Although Bank Of America Corporation (NYSE:BAC) operates in several countries, its primary focus is the United States.
Bank Of America Corporation (NYSE:BAC) has become one of the leading US banking franchises after years of problems during the 2008 financial crisis. The bank is a Tier 1 investment bank, a top four US credit card issuer, a top three US acquirer, has a strong commercial banking franchise, and owns the Merrill Lynch franchise, which has grown to become one of the top US brokerage and advisory firms. It also boasts one of the best retail branch networks and overall retail franchises in the US.
Bank of America (NYSE: BAC) makes a strong bull case with its diverse businesses and outstanding Q3 of 2024 earnings, which reported $25.49 billion in revenue, slightly above expectations. The bank benefited from Wall Street’s activity, with fixed-income trading revenue jumping by 8% YoY to $2.9 billion and equities trading up 18% YoY to $2 billion, both exceeding expectations. Investment banking fees increased by 18% to $1.4 billion, showing strength in advisory operations.
Evercore ISI maintained its Outperform rating on Bank Of America Corporation (NYSE:BAC) shares and increased its price objective from $45 to $53. The analyst notes that after a “pretty strong” September and October, investment banking activity levels continued to decline into December, and that equity markets sold off by roughly 2% in December in “a post-post-election breather driven largely by the realization” that rate cuts might not be as imminent as thought. In a Q4 forecast for the big banks’ group, the analyst stated that although December cooled, the firm anticipates a robust start to 2025 because Evercore generally views recovery in investment banking as a “when, not if” story.
Warren Buffett’s Berkshire Hathaway was the largest stakeholder in the company among the funds in Insider Monkey’s database. It owns 797.68 million shares worth $31.65 billion as of Q3.
Overall, BAC ranks 5th on our list of the Best Financial Stocks To Buy According to Hedge Funds. While we acknowledge the potential for BAC to grow, 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
