Bank of America (BAC) has come a long way since the depths of the 2008 financial crisis, with the company earning $4.2 billion (or $0.25 per diluted share) during the year ended Dec. 31, 2012, after losing $2.2 billion (or $0.37 per diluted share) during 2010.

The company’s stock also performed well during the past few years, rising to $16.77 last Friday, from an intra-day low of $2.53 on Feb. 20, 2009.

With my research indicating that the pace of economic growth in most regions of the world will increase considerably over the next 12-18 months, I expect Bank of America and its stock to continue to perform well during the months ahead.

Editor’s Note: 18.79% Annual Returns . . . for Life?

One of the world’s larger financial institutions, and the second-largest bank in the United States, Bank of America provides a diversified range of financial services and products through five business segments: consumer & business banking, consumer real estate services, global banking, global markets, and global wealth & investment management.

The company operates in all 50 states and more than 40 countries around the globe, with approximately 5,200 bank locations and 16,200 ATMs in the United States serving approximately 51 million individuals and businesses. The bank’s Merrill Lynch subsidiary has more than $2 trillion under management.

Looking forward, there are three major drivers that I expect to propel BAC higher: continuing improvements in the U.S. employment market;  similar improvements in the U.S. housing market, and increases in the demand for wealth-management services.

Although last Friday’s employment report from the U.S. Department of Labor was somewhat disappointing, certain elements of that report were encouraging. For example, the Labor Department reported that the number of hours worked by manufacturing production employees, as well as the number of over-time hours worked by those persons, rose substantially during the past two months.

Historically, those economic series have served as very reliable leading economic indicators, meaning that the pace of economic growth in the United States has tended to accelerate for at least several months following increases in the readings on those economic indicators.

Meanwhile, the Conference Board, a leading economic forecasting firm, announced last Wednesday that the number of employment advertisements posted on Internet web sites rose substantially during December.

Separately, ADP, Inc., a global payroll services company, announced on that same day that the number of jobs created in the private sector of the U.S. economy — non-government jobs — continued to increase over the past three months, rising in excess of 200,000 jobs during each of those months. Those announcements suggest that other than government jobs, the employment situation is improving in the United States.

As a result of those improvements, I expect American households, in the aggregate, to increase their spending on various types of goods and services during the coming months. If that were to occur, I would also expect U.S. businesses to increase their spending, especially on manufacturing facilities and business equipment, in an effort to satisfy any increases in the demand for their goods and services. A portion of that spending would likely be funded by bank loans. Any such development would bode well for Bank of America, which derives a large percentage of its revenues from loans to U.S. households and businesses.

In regard to the U.S. housing market, the construction of new homes continued to trend higher over the past few months, rising by approximately 31 percent from July-November, 2013, the latest period for which data is available. That’s a very positive development because substantial increases in new housing starts have, historically, been followed by increases in the pace of economic growth in the United States. Hence, a continuation of the recent increases in housing starts would suggest that the employment situation in the United States would continue to improve during the months ahead.

Being a reliable leading indicator for sales of both new and previously-owned homes, the recent increases in the construction of new homes, also indicate that home sales will increase during the months ahead. That would also bode well for Bank of America, which derived approximately 9 percent of its total revenues from mortgage loans and home equity loans during the nine months ended Sept. 30, 2013.

Although you might think that increases in mortgage rates would slow the demand for homes, sales of homes have, historically, risen for approximately 12-18 months following increases in mortgage rates. That’s because those rate increases tend to lead persons who were thinking of buying a home to do so before rates rise to a level that would prevent them from doing so.

Another factor that bodes well for Bank of America is that many individual investors failed to participate in the huge stock market increases that occurred over the past few years, and many of those same investors are now concerned about the potentially negative effect that any increases in lending rates might have on their investment portfolios. That’s because an increasing number of those investors have been turning to financial advisers like the persons employed by Bank of America’s Merrill Lynch subsidiary for help with their portfolios.

With approximately 15,600 financial advisers meeting with individual investors on a regular basis, Bank of America is in an excellent position to capitalize on that trend.

As a testimony to that claim, the total amount of assets under management at Merrill Lynch rose by a whopping 150 percent during the nine months ended Sept. 30, 2013, as compared to the same nine months during 2012.

Meanwhile, the amount of assets held at Bank of America’s discount brokerage division — Merrill Edge — rose 18 percent during the nine months ended September 30, 2013, as compared to the same period during 2012.

Some other factors and developments that bode well for Bank of America include the following:

• The company plans to continue to repurchase substantial amounts of its common stock during 2014, after purchasing 139.6 million common shares of its stock, for an aggregate purchase price of approximately $1.9 billion, during 2013. Specifically, Bank of America plans to repurchase up to an additional $3.1 billion of its common stock.
• In an effort to increase the company’s number of investment brokerage accounts, Bank of America is in the process of placing a substantially-larger number of its Merrill Lynch Advisors at the company’s commercial bank locations. Bank of America is convinced that by doing so it will be in a position to broaden and deepen its relationships with the bank’s customers, thereby placing it in a better position to increase the number and types of accounts that its customers maintain at the bank.
• The potential financial burdens that the company faced over the past few years as a result of the 2008 mortgage debacle appear to be coming to an end, with Bank of America announcing on December 2 that it had made an agreement with the Federal Home Loan Mortgage Corporation (Freddie Mac) to resolve all remaining claims for residential mortgage loans sold to Freddie Mac from Jan. 1, 2000 to Dec. 31, 2009.

Meanwhile, the company is awaiting a decision from the New York State Supreme Court regarding its offer to pay $8.5 billion to settle all claims held against the bank regarding mortgage-backed securities issued by Countrywide Financial Corp, which the company acquired during 2008.

If approved by the Court, the deal would be binding on all claimants. (Opponents to the deal now number 15, down from 44, which constitutes less than 7 percent of certificate holders in the 530 trusts covered by the accord).

Although I expect BAC to trend substantially higher than its current price over the next 12-18 months, the recent trading action in BAC indicates that it’s due for a temporary pullback.

For example, on the past five days when BAC was moving higher the volume of trading in the stock was trending lower, indicating that fewer and fewer financial market participants were willing to pay a higher price for the stock.

Meanwhile, BAC closed last Friday near a major price-resistance level. Under those types of trading scenarios, stocks often pull back a bit for several days. Therefore, I encourage you to wait for a pullback in BAC before committing any of your money to the stock.

However, if BAC were to pull back to around $15.75, I would likely advise both speculative and conservative investors you to allocate a portion of their financial market assets to BAC.

Editor’s Note: 18.79% Annual Returns . . . for Life?

David N. Frazier has an extensive background in the investment securities industry and has invested in the financial markets for more than 25 years.

In addition to working as a business analyst, merchant banking analyst and equity research analyst, he’s held positions in sales and marketing at institutional investment firms, including William O’Neil & Co., TDAmeritrade, and Merrill Lynch.

David now serves as the President and Chief Market Strategist of Frazier & Mayer Research, LLC (dba www.TheMarketMonk.com), an independent investment research firm that provides research and analytical services to hedge funds, investment advisory firms, and other investment newsletters.