Join our community of smart investors

Shares I Love: Bank of America

A strong economic environment should offer a period of growth for Bank of America
Shares I Love: Bank of America
  • 2020 was challenging for US banks but this year they are in a much stronger position
  • A strong economic environment should offer a period of growth for banks

Jonathan Simon, co-manager of JPMorgan American Investment Trust (JAM), explains why he invests in Bank of America (US: BAC).

“2020 was a challenging year for investors in US banks as they navigated a recessionary environment, lower interest rates and the pressure to build credit loss reserves alongside an inability to buy back shares or increase dividends. Yet today the sector is in a much stronger position.

"Buyback programmes have recommenced and credit loss reserves are being released. Positive economic indicators reinforce the overall market conviction in favour of a strong US recovery, with many strategists predicting that 2021 US gross domestic product (GDP) growth will be the strongest in over 35 years. 

"A strong economic environment should offer a period of growth for the banking sector, particularly Bank of America – the second-largest bank in the US. During 2020 the bank prepared for the worst, setting aside billions for potential losses. Yet when this scenario thankfully didn’t materialise, Bank of America ended 2020 in a stronger financial position than it started the year.

"The bank has continued its strong run in 2021 and recently announced a $25bn (£17.71bn) share repurchase programme. The company’s share price was up 30 per cent over the first four months of this year and we believe that this recovery has further to run. Trading at 1.4x book value and a forward price-to-earnings of 13x, as of the end of April, with a dividend yield of 1.8 per cent, Bank of America looks very attractive on a risk versus reward basis and should trade at a much higher multiple.”

Bank of America was JPMorgan American Investment Trust’s seventh-largest holding, accounting for 3.5 per cent of its assets at the end of March. The trust had 17.3 per cent of its assets in financials, its second-largest sector exposure.