This week’s Stock of the Week is a giant in an undervalued industry.

Growing Giant

Bank of America Corporation (BAC) is the largest bank in the US as measured by deposits. Investing in it is essentially a way to invest in the whole banking sector—which remains undervalued within the overall stock market.

This bank has more than 4,500 bricks-and-mortar branches or “financial centers” and four separate divisions—Consumer Banking, Global Wealth & Investment Management, Global Banking and Global Markets. It gets about half its revenue from traditional banking, including loans and deposits, and its revenue is huge. It was $87 billion last year and will likely be $92 billion this year and $96 billion in 2019. But the biggest opportunity here lies in the 50% of the bank’s revenue that comes from fee-based services such as investment banking and wealth management. These have underperformed in recent years because of highly restrictive government regulations since the financial crisis a decade ago. But those restrictions seem likely to be loosened soon.

In addition, Bank of America’s strong performance in its government-mandated stress tests should free up enough cash to result in higher share buybacks and dividend payouts. The current dividend of $0.48/share/yr. recently yielded 1.6% and has grown 60% per year for the last five years—with further growth likely.

Fiscal year: December. Earnings per share: 2019 est./$2.87…2018 est./$2.48…2017/$1.56.

Ryan C. Kelley, CFA, is vice president and portfolio manager of the $205 million Hennessy Small Cap Financial Fund (HSFNX) and $54 million Hennessy Large Cap Financial Fund (HLFNX), Novato, California. HennessyFunds.com