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Bank of America(BAC - Get Report) is one of those head-scratchers among professional favorite stocks right now. The bank is one of the largest in the world, with operations that range from consumer and commercial banking to investment banking and asset management. BofA was also one of the most conspicuous losers during the credit crisis, betting big on Countrywide -- and picking up tens of billion of dollars in legal liabilities in the process. Still, institutions love this stock right now, and they picked up 589 million shares of the firm in the most recent quarter.
BofA's scale does come with some advantages. Its reach in all 50 states gives the firm the ability to court more mobile banking customers and raise substantial, cheap deposits. The flip side of that coin is that growth is exceptionally hard to achieve at this point unless the broad economy grows too -- something that not all investors are willing to concede.
That said, there are some positives to Bank of America. While growth may be hard to come by, its price has ample room to appreciate before its valuation starts to look unwieldy. The inevitable return to higher interest rates means that the critical spreads that BofA is able to earn can expand (and margins along with them). And as Bank of America slowly and painfully shores up its loan book, it should start looking a whole lot less scary to investors.
Maybe BofA isn't as much of a head scratcher as it may first appear, but investors shouldn't pile in without understanding the risks of that come with it.
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