It should be no surprise that the best-performing stock on the Dow Jones Industrial Average (DJINDICES: ^DJI ) for any year in particular rarely follows up with such a performance the following year. Indeed, this is what the so-called Dogs of the Dow theory is all about.
But this year could be different. In 2012, as you probably know by now, Bank of America (NYSE: BAC ) was far and away the winner, more than doubling in share price. This year, assuming things continue on their current trajectory, it could mark another victory -- increasing substantially at the very least.
Three huge things happened today which could fuel gains for the remainder of the year. First, along with other too-big-to-fail banks such as JPMorgan Chase (NYSE: JPM ) and Citigroup (NYSE: C ) , B of A provided its submission for the now-annual stress tests completed by the Federal Reserve. Assuming B of A passes, which I believe it will, it could very well get the go-ahead to return more capital to shareholders via dividends or share repurchases.
Second, it entered into a multibillion-dollar settlement with Fannie Mae that extinguishes effectively all of the latter's claims against B of A dating back to the financial crisis. While the settlement was unquestionably expensive, totaling more than $10 billion, it removes the most significant reason that the bank's shares trade for roughly half of book value.
And third, a consortium of banks, again including B of A as well as Wells Fargo (NYSE: WFC ) and eight other mortgage servicers, have agreed with regulators to pay a combined $8.5 billion to resolve claims related to foreclosure abuse. Again, while expensive, it removes yet another cloud from over the heads of B of A and its shareholders.
Now, let me be clear, I'm not predicting that B of A's shares will double again this year -- unfortunately my crystal ball appears to be out of commission. What I am saying, however, is that these three things will unquestionably fuel B of A's earnings going forward. And, assuming that higher earnings translate into dividends and share repurchases, there's every reason to believe that B of A's share price will respond accordingly.
Can you beat the market?
The Motley Fool wants to give you a 98.79% chance at beating the market. If you're interested in the best odds in the universe -- including more than a 70% chance at doubling the market's return over the long haul -- here's some very good news for you... Motley Fool Supernova is re-opening to new members next week! Get instant and free access to learn how you get these kind of market-beating odds by clicking here now.
RSS Headlines
Fool UK