Analysts Think You Should Buy Bank of America's Stock

By Markets Fool.com

What bank analysts probably looked like in the 1990s take a gander at that computer monitor! Image source: iStock/Thinkstock.

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The consensus among analysts is clear: The best big bank stock to buy right now is Bank of America (NYSE: BAC). Thanks to the North Carolina-based bank's paltry valuation, analysts have given it the highest recommendation rating among the nation's biggest banks.

The average analyst has slapped a $17.28 price target on Bank of America's stock, according to Yahoo! Finance. Meanwhile, its stock currently trades for only $15.23 per share.

If analysts are right, then, Bank of America's stock has considerable upside -- 13.5% to be precise. That's not too shabby when you consider that stocks in general are considered to be overvalued right now thanks to the low interest rate environment, which pushes up equity prices, as well as economic concerns in Europe and China, which cause cash to flood into U.S. markets.

Bank of America's upside compares well to other banks. It comes in second behind only Citigroup (NYSE: C), which could see its shares rise by 16.6% if the consensus price target on the New York City-based bank's stock is accurate. Among the nation's six biggest banks by assets, these are the only two that analysts believe offer near-term double-digit growth potential.

Bank

Current Price

Consensus Price Target

Upside

Citigroup

$46.49

$54.19

16.6%

Bank of America

$15.23

$17.28

13.5%

Wells Fargo

$48.62

$53.00

9%

Goldman Sachs

$166.76

$181.21

8.7%

JPMorgan Chase

$65.88

$69.84

6%

Morgan Stanley

$30.69

$32.37

5.5%

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Data source: Yahoo! Finance.

But even though Citigroup seems to offer more upside, analysts nevertheless prefer Bank of America's stock. You can see this by comparing analysts' recommendation ratings. Yahoo! Finance presents these on a scale from 1.0 to 5.0 -- the lower the rating the better, with a rating of 3.0 translating into a "hold" recommendation.

Analysts have given Bank of America a consensus rating of 1.9. That's stronger than just a straight-up "buy" recommendation, which equates to a rating of 2.0, but it comes up short of a "strong buy" recommendation, which equates to a rating of 1.0 or lower. As you can see in the table below, Bank of America has the highest rating among big bank stocks, outpacing even Citigroup.

Bank

Recommendation Rating (Lower is Better)

Bank of America

1.9

Citigroup

2.0

JPMorgan Chase

2.1

Wells Fargo

2.4

Morgan Stanley

2.4

Goldman Sachs

2.4

Data source: Yahoo! Finance.

There are no doubt many variables that factor into these ratings, but it seems like the most important one in this case is valuation. Bank of America's stock trades for a 36% discount to book value. This means that the market values it at only 64% of the stated valued on its balance sheet.

The only bank that even comes close to such a low valuation is Citigroup, which also happens to trade for a 36% discount to its shareholders' equity -- most other bank stocks trade in the vicinity of their book values. The difference between Bank of America's and Citigroup's recommendation ratings, in turn, probably has to do with the latter's uniquely volatile business mix, given its vast global operations compared to Bank of America's heavier domestic focus.

The point is that not all stocks are expensive right now. And, at least if you believe analysts, few are cheaper than Bank of America.

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John Maxfield owns shares of Bank of America, Goldman Sachs, and Wells Fargo. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.