It should be no surprise that the best-performing stock on the Dow Jones Industrial Average for any year in particular rarely follows up with such a performance the following year. Indeed, this is what the so-called Dogs of the Dow theory is all about.
But this year could be different. In 2012, as you probably know by now, Bank of America was far and away the winner, more than doubling in share price. This year, assuming things continue on their current trajectory, it could mark another victory -- increasing substantially at the very least.
Three huge things happened today which could fuel gains for the remainder of the year. First, along with other too-big-to-fail banks such as JPMorgan Chase and Citigroup , B of A provided its submission for the now-annual stress tests completed by the Federal Reserve. Assuming B of A passes, which I believe it will, it could very well get the go-ahead to return more capital to shareholders via dividends or share repurchases.
Second, it entered into a multibillion-dollar settlement with Fannie Mae that extinguishes effectively all of the latter's claims against B of A dating back to the financial crisis. While the settlement was unquestionably expensive, totaling more than $10 billion, it removes the most significant reason that the bank's shares trade for roughly half of book value.
And third, a consortium of banks, again including B of A as well as Wells Fargo and eight other mortgage servicers, have agreed with regulators to pay a combined $8.5 billion to resolve claims related to foreclosure abuse. Again, while expensive, it removes yet another cloud from over the heads of B of A and its shareholders.
Now, let me be clear, I'm not predicting that B of A's shares will double again this year -- unfortunately my crystal ball appears to be out of commission. What I am saying, however, is that these three things will unquestionably fuel B of A's earnings going forward. And, assuming that higher earnings translate into dividends and share repurchases, there's every reason to believe that B of A's share price will respond accordingly.
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The article 1 Dow Stock Gets Approval for Takeoff originally appeared on Fool.com.
John Maxfield owns shares of Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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