Does Bank of America Belong in Your Portfolio?

With shares of Bank of America (NYSE:BAC) trading around $17, is BAC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Bank of America is a financial institution serving individual consumers, small- and middle-market businesses, corporations, and governments with a range of banking, investing, asset management, and other financial and risk management products and services. With its banking and various non-banking subsidiaries throughout the United States and international markets, the company provides a range of banking and non-banking financial services and products through several business segments: consumer and business banking, consumer real estate services, global banking, global markets, global wealth, investment management, and other.

Bank of America on Wednesday reported net income of $3.4 billion, or 29 cents per diluted share, for the fourth quarter of 2013, compared to $732 million, or 3 cents per diluted share in the year-ago period. Revenue, net of interest expense, on an FTE basis rose 15 percent from the fourth quarter of 2012 to $21.7 billion.

“We are pleased to see the core businesses continue to perform well, serving our customers and clients,” said Chief Executive Officer Brian Moynihan. “While work remains on past issues, our two hundred forty thousand teammates continue to do a great job winning in the marketplace.” "We enter this year with one of the strongest balance sheets in our company's history," said Chief Financial Officer Bruce Thompson. "Capital and liquidity are at record levels, credit losses are at historic lows, our cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum."

T = Technicals on the Stock Chart Are Strong

Bank of America stock has been flying higher in recent quarters. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Bank of America is trading above its rising key averages which signal neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Bank of America options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Bank of America options	19.92%	0%	0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
February Options	Flat	Average
March Options	Flat	Average

As of Wednesday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Bank of America’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Bank of America look like and more importantly, how did the markets like these numbers?

	2014 Q4	2013 Q3	2013 Q2	2013 Q1
Earnings Growth (Y-O-Y)	866.67%	20%	68.42%	233.3%
Revenue Growth (Y-O-Y)	364.48%	-1.52%	3.46%	4.13%
Earnings Reaction	2.68%*	2.24%	2.8%	-4.72%

*As of this writing.

Bank of America has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Bank of America’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Bank of America stock done relative to its peers – JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C) — and sector?

	Bank of America	JPMorgan Chase	Wells Fargo	Citigroup	Sector
Year-to-Date Return	10.34%	0.97%	2%	5.47%	5.69%

Bank of America has been a relative performance leader, year-to-date.

Conclusion

Bank of America is a bank and financial services giant that operates in a recovering financial industry, the backbone of the United States economy. The company reported fourth quarter earnings that left investors pleased. The stock has been exploding to the upside in recent quarters and is currently trading near highs for the year. Over the last four-quarters, earnings and revenue figures have been have been increasing. Relative to its peers and sector, Bank of America has been a year-to-date performance leader. Look for Bank of America to OUTPERFORM.