Each week, Industry Focus: Financials host Jason Moser and Motley Fool contributor Matt Frankel, CFP each tells listeners about one stock that's on their radar and why. In this clip, you'll hear why we think Bank of America (NYSE:BAC) could be set for major profits and why Facebook (NASDAQ:FB) is a stock you should be watching.
A full transcript follows the video.
This video was recorded on Oct. 1, 2018.
Jason Moser: As always, we have One to Watch as we wrap up this week. A stock we have on our radar, for whatever reason. Could be good. Could be bad. Matt, tell me, what's your one to watch this week?
Matt Frankel: I've mentioned it a couple of times so far on this show, Bank of America. The reason I like it, I mentioned that long-term interest rates really haven't caught up with short-term ones yet. If they do, Bank of America stands to benefit more than any of the other big banks. The reason is, they have a higher proportion of what are known as interest-free deposits, meaning in a savings account that doesn't bear interest. They have no cost of the money on those accounts and can loan it out at market rates. So, as market rates rise, you'll see the spreads widen faster for Bank of America, than any of the other big banks. I think that that's coming in the next few years. I think there's a lot of catching up to do for long-term rates. Pay attention to the 10-year Treasury, like I said. But I think when that catches up, Bank of America will be the big beneficiary out of the big banks.
Moser: And what's the ticker for Bank of America?
Moser: I'm going to dig back to a company we talked a bit about last week. We had the headline that broke this past weekend, Facebook, ticker FB. I know, this isn't a financial company, so to speak. But it really ties back to the subject that we covered on Facebook and banks. Facebook has historically, it seems, been trying to work more closely with banks, get a little bit more of banks' data. This data breach that we found out about on Friday, it was another 50 million or so accounts... to me, when it comes to Facebook, this is just something that you have to expect. Whether it's Facebook, or Instagram, or Messenger, or whatever, I think data breaches are just part and parcel of this market.
Looking a little bit further, and thinking about Facebook and their relationship with banks, on the one hand, banks have every incentive in the world to keep your data secure. That's really what they're in the business of doing, or at least trying to do. They have the incentive to try to keep your data secure. If you look at Facebook's business model, their incentive is completely the other way around. Really, their incentive is to get your data out there and try to sell as many ads as possible using that data.
So, to me, I just feel like, when you talk about Facebook and banks, you talk about two industries where the incentives are just never going to be aligned. That's why I would never, ever look at Facebook as a potential play in the financials space. Not to see it can't be a successful investment in other ways. But when it comes to Facebook and banks, I think that conversation needs to remain closed. That's just my two cents.
Jason Moser has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Bank of America. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.