Bank of America is the most popular financial security on Robinhood. Should it be?



Robinhood has become a popular trading platform for new investors during the COVID-19 pandemic, and the major bank stocks traded on the site on Monday morning are Bank of America (NYSE: BAC). Some of the other heavily traded companies make sense to new investors, such as Walt disney and Should Bank of America be on this list? Keep reading to find out.

Strength in the face of adversity

Let’s take a look at how Bank of America is doing. Second quarter results were better than analysts expected, even with net interest income down 11% year-on-year and a 9% drop in pre-provision income, i.e. income. net before tax and allowance for loan losses. But loss provisions were high for most banks as the economy suffered during the pandemic, and Bank of America’s $ 4 billion provision in the second quarter lowered earnings per share by 50 percent. year over year at $ 0.37 per share.

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It is a vision of the economy more than of the bank. Given the state of the economy today, Bank of America is showing its strength as a privileged and stable financial institution.

From this perspective, Bank of America is in a weaker position than banks that are less consumer-oriented during a recession. However, it has many strengths in its large deposits, which were up $ 135 billion from the previous quarter. Loans were down $ 52 billion from the previous quarter as businesses increased in activity and were able to repay loans.

What might interest millennial investors is the company’s digital and technological orientation. Accounts opened online grew 20% in the quarter, accounting for almost half of total sales. Some examples of how the bank engages its customers digitally:

  • Digital connections for Merrill Lynch Wealth Management clients have grown 100% year over year.
  • Digital check deposits made up 39% of the total, over 25% last year.
  • There were 1 million new users of mobile check deposits.
  • There have been 3 million new Zelle users in the past 12 months, doubling the amount of dollar transfers.

Suitable for investors

Banking in general is harder to understand than retail – businesses that make money selling products to customers follow a pretty basic pattern for financial statements. Financial institutions’ income statements have items you won’t see anywhere else, such as net interest income, write-offs, and provisions for losses. So banks may not be the place to start if you are a beginner. However, after having had the chance to study banking, is Bank of America a good first choice?

Bank of America has a strong consumer division but a smaller institutional division, which is why it did not perform as well in the second quarter as large institutional banks such as Goldman Sachs. JPMorgan Chase, which is the largest bank in the United States by assets, also has a large consumer branch and also saw a substantial drop in earnings per share due to loss provisions. The commercial arm of Bank of America has actually done very well, which has driven the overall numbers up. Because it is consumer-centric, its metrics are easier to understand than those of investment banks, which have more complex terms and formulas that make up a larger part of its operations. The emphasis on technology can also attract young investors.

Bank of America has also been one of the best performing banking stocks over the past three years, and although the price has declined since the start of the year, it has been stronger than Wells fargo, Citigroup, and A capital letter, all of which experienced much larger declines.

Robinhood investors are very interested in buying when stock prices are low, but that is not the only determining factor when considering a business that will generate increases. In the case of Bank of America, however, the data confirms that it is a strong company with a bright future, and investors can be confident to seize the moment when the stock price is falling for. better educate themselves while their money is working for them.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.



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