Why Bank of America Is Sending the Dow to New Records

Many investors expected that after the long run-up for the Dow Jones Industrials (DJINDICES: ^DJI  ) to record highs, the market might take a pause once it actually reached that milestone. Yet after hitting a new record yesterday, the Dow hasn't stopped at all, rising another 37 points as of 10:50 a.m. EST. With the S&P 500 within 2% of its own all-time record, some traders expect further gains for U.S. stocks so long as news events cooperate. So far, at least, investors appear to be ignoring uncertainty over sequestration's spending cuts and the need to pass a continuing resolution to keep the government operating.

Within the Dow, Bank of America (NYSE: BAC  ) is among the biggest gainers, rising more than 2% on hopes that the coming round of stress-test results will allow the company to make a long-awaited boost to its $0.01 quarterly dividend. With a yield of just 0.4%, B of A has the lowest dividend in the Dow, but a vast improvement in capital condition in recent years could finally open the doors for income investors to get bigger payouts from the bank.

Elsewhere, VeriFone Systems (NYSE: PAY  ) has climbed more than 10% after beating already-trimmed earnings estimates in its quarterly report last night. Even though VeriFone gave some troubling guidance for full-year 2013 earnings, it apparently didn't provide any further surprises for investors, who sent the stock down almost 40% in a single day late last month when the company warned that worse-than-expected results were coming for the just-reported quarter.

Finally, Qihoo 360 (NYSE: QIHU  ) has fallen almost 7% following its earnings release late Tuesday. Despite beating estimates and raising guidance, shares sold off after hours, and Wall Street analyst Jefferies followed up by downgrading the stock. The big question for Qihoo and rival Baidu (NASDAQ: BIDU  ) is whether the move away from PCs and toward mobile devices will shift the market-share dynamic between the two companies. Given the substantial disagreement among analysts following the companies, Qihoo needs to demonstrate it can compete with Baidu on mobile.

Today's gains for Bank of America add to the monster gains it made last year, when the stock doubled in value. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analyst Anand Chokkavelu, CFA, and Financials bureau chief Matt Koppenheffer lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.


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  • Report this Comment On March 06, 2013, at 1:31 PM, adamw135 wrote:

    Dan,

    I think it's worthwhile to note that the DJIA is price weighted. That means the stocks with the highest stock price have the greatest weight. The top 3 of IBM, CVX, MMM.

    BOA holds only a .62% weight. That means in 2012 if the Dow returned ~10% then BOA contributed only 0.62% to that gain... (100% gain in 2012 * a .62% weight).

    So even though BOA did have a positive impact on the Dow, the reasons for the Dow's gain are not solely due to BOA.

    It's important to understand how the index works as well as the company you want to invest in.

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