Should you buy Bank of America while it’s below $45?

Actions of Bank of America (BAC 1.83%) have risen higher this year, momentum that has continued since the end of 2023 on the back strong corporate results. But the company has yet to return to its previous highs.

Investors should buy this top bank stock while currently trading below $45 per share? Let’s look at the positive and negative traits of Bank of America before deciding.

Bank of America Sustainability

The history of Bank of America dates back to 1904, when AP Giannini founded the Bank of Italy in San Francisco. The company has proven itself to be durable, standing the test of time. And this in the face of technological changes that have altered the industry.

The Lindy effect states that the longer something has been around, the longer its life expectancy from this point forward. This gives me confidence to say that Bank of America will not be disrupted anytime soon.

Bank of America has a wide economic moat. I would argue that branding is a key asset. In this industry, trust means a lot. And the fact that Bank of America has weathered several turbulent times and continued to serve its user base is telling. The business is the leader in retail warehouses in the US, a clear indication of the trust that customers have in it.

The company’s massive scale, with operations in 35 countries, is another advantage. Bank of America can easily acquire and serve new customers by having the ability to offer an exhaustive list of products and services tailored to their specific needs.

Another reason to buy stocks is that Warren Buffett led Berkshire Hathaway is a huge shareholder, owning 11.4% of the massive bank. That’s even after the Oracle of Omaha conglomerate he cut his position.

Bank of America is consistently profitable, a characteristic that might be taken for granted. In the last decade, it is net profit margin averaged 25%. This core performance enables the business to continuously pay dividends. For investors who like companies that offer a regular stream of passive income, Bank of America may be compelling with its 2.6% yield.

Bank of America’s balance sheet

One of the main reasons not to own this stock, even if Buffett does, is because of its disappointing track record. Over the past three, five and 10-year periods, the stock has produced a total return that lags the broader. S&P 500 index.

Even after this poor performance, the stock looks fully valued. It is traded at a the price-book ratio of almost 1.2. This is not only a premium to the 10-year average, but is much higher than a multiple of 1, the point below which banks are considered undervalued.

As with any financial services business, especially those that lend and lend, Bank of America’s operations are cyclical. One might quickly assume that, with the Federal Reserve set to cut its benchmark interest rate this month, banks will see stronger demand for loans from borrowers, with the possibility that rates paid to depositors on their savings to decrease.

In addition, lower interest rates are seen as accommodative to the economy. They could boost GDP growth, which is good for banks.

All of this perspective makes sense, but it’s hard to know how much of this anticipation of a more favorable macro context is already priced into stocks. The stock is up 54% over the past 10 months, so perhaps the market has already become overly bullish.

Bank of America’s financial performance continues to evolve in the direction of the economic environment. And for me, this is a very unappealing feature.

Bank of America is not going away because its durability is remarkable. However, I don’t think the stock will outperform the S&P 500 over the long term, which mimics its past performance. So I don’t buy stocks even if they trade below $45.