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Bank of America Remains a Strong Buy


The potential for higher interest rates could push large-cap banks higher.

MINYANVILLE ORIGINAL We wanted to provide Minyanville readers with an update on the large-cap banks. We started to get bullish in this group back in August as Bank of America (BAC) moved to a Strong Buy. We have mentioned this name before, specifically as the best way within the group to leverage a housing recover. Now we have another catalyst that will help push these names higher -- the potential for higher rates. If the market believes rates have bottomed at this point, the balance sheets of these large banks that are interest rate-sensitive will have expansion in NIM (Net Interest Margin). One risk, however, is a faster rise in rates than expected where these banks have little time to adjust their loans. If rates increase gradually, banks will have enough time to take advantage of higher rates and adjust their loans, which will increase profitability.

At this juncture, we would remain long BAC and financial exposure for a longer-term investment. As you can see from the correlatation chart, these names all have similair correlation and little divergence from one another. For that reason, there is no need to own more than one of these names.

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