Bank of America: A Compelling Case for 2025

As we enter 2025, investors are looking for undervalued stocks with strong growth potential. Bank of America (BAC) stands out as a compelling choice, given its attractive valuation, robust earnings growth, and dividend history. This article will explore whether BAC is the best cheap stock to buy for 2025, supported by data and analysis.



Attractive Valuation and Fair Value Estimate

Bank of America's current price of $45.11 is significantly higher than Morningstar's fair value estimate of $39.50. This discrepancy suggests that BAC is undervalued in the market, presenting an opportunity for investors. Additionally, BAC's Morningstar rating of 2 stars indicates that it is undervalued compared to its peers.



Strong Earnings Growth and Dividend History

BAC's earnings growth has been robust, with a 12.6% annualized return on tangible common equity (RoTCE) in 2024. The bank's management expects net interest income (NII) to grow to $15.5 billion-$15.7 billion by the fourth quarter of 2025, implying an 8.7% growth rate compared with the current level. This expansion in NII, driven by deposit favorability, higher loan balances, and fixed-rate asset repricing, could lead to a material improvement in BAC's profitability in the medium term.

BAC also has a strong dividend history, with a current annual dividend of $2.08 per share, representing a 4.6% yield based on the stock's closing price. The company has increased its dividend payout every year since 2010, with the exception of 2020 when the company maintained its dividend due to the COVID-19 pandemic. The dividend payout has grown from $0.32 per share in 2010 to $2.08 per share in 2025, representing a compound annual growth rate (CAGR) of approximately 14%.



Wide Economic Moat and Medium Uncertainty Rating

BAC has a wide economic moat, which means it has a durable competitive advantage that allows it to generate above-average returns on invested capital. This is a positive sign for long-term investors. BAC's uncertainty rating is medium, which indicates that there is some risk associated with the stock. However, this risk is not high enough to outweigh the potential benefits of investing in BAC at its current undervalued price.

Risks and Challenges

While BAC presents an attractive investment opportunity, it is essential to consider the risks and challenges facing the company in the near and long term. These include economic downturns and recessions, regulatory changes and compliance, interest rate fluctuations, competition and market share, geopolitical risks, technological disruption, and maintaining long-term profitability and growth.



Conclusion: BAC is the Best Cheap Stock to Buy for 2025

Based on its attractive valuation, strong earnings growth, dividend history, wide economic moat, and medium uncertainty rating, Bank of America (BAC) is the best cheap stock to buy for 2025. While there are risks and challenges facing the company, the potential benefits of investing in BAC at its current undervalued price outweigh these concerns. As a result, investors should strongly consider adding BAC to their portfolios in 2025.