We're Upgrading This Bank Position
Results and guidance from Jefferies speak to continued investment banking and wealth management strength.
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Following the recent pullback in Bank of America BAC shares, we are boosting our rating for them to one from two. Our price target on BAC shares remains $49.
While we recognize the overall market is short-term overbought and its P/E multiple is stretched, should BAC shares break support near $39.50, we would be interested in picking up more shares closer to the 200-day moving average near $37.
The catalyst for this move was the thesis confirming quarterly results on Wednesday night from Jefferies JEF that contained better-than-consensus results for its investment banking and advisory, and equity trading businesses.
Jefferies also shared that its investment banking pipeline “remains strong.” Those results and that outlook also reaffirm our recent upgrade of Morgan Stanley MS shares to one from two as well as our recent decision to add more BAC and MS shares to the Portfolio.
We are also starting to see institutions that offer high-yield savings accounts move interest rates lower. Case in point, Apple AAPL and Goldman Sachs GS have trimmed their Apple Card Savings Account rate to 4.25% from 4.4%, marking the second rate cut for that product this year.
Our thinking is that, as the Fed delivers more rate cuts over the coming 12 to 15 months, we will see further erosion in interest rate levels for high-yield savings accounts like those. That should bring incremental capital back into the market, a positive for the wealth management businesses at both Morgan Stanley and Bank of America. Those same rate cuts and the impact on borrowing costs are likely to continue the investment banking rebound, another positive for both companies.
Meanwhile, Bank of America is on track to open more than 165 new financial centers across 63 markets by the end of 2026. We see this as a part of management’s ongoing efforts to pick up incremental market share for its consumer banking business, one that should also see its mortgage and loan activity benefit as interest rates decline further.
Upcoming catalysts for these two positions include quarterly earnings from JPMorgan Chase JPM and Wells Fargo WFC on October 11. Bank of America is slotted to report its September quarter results on October 15 with Morgan Stanley to follow the next day.
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At the time of publication, TheStreet Pro Portfolio was long BAC, MS and AAPL.
