I have sold out of my Bank of America (NYSE; $BAC) position yesterday at the close for a 94% gain. It was one year ago that I purchased BAC after it sold off hard due to recessionary fears. I believed there would be no recession and a major, profitable, and under-leveraged bank selling for 80% of tangible book with an earnings yield of 11% was a slam dunk.
With close to a double in a year, the share price reflects a fair amount of optimism about BAC’s business. BAC is now selling for almost a 50% of premium to tangible book and 14x 2017 earnings which is expected to grow a strong 15% due to higher interest rates and less regulatory burden thanks to the Trump White House.
However, any kind of a hiccup from China’s economy, which I believe is a decent possibility in the next 12 months, and BAC could give up a lot of its recent gains. Therefore, I think holding BAC at current prices entails a fair amount of risk.