Why Bank of America Could Be the Best Value Among the Big Banks Right Now

Financial stocks have made up the worst-performing sector year to date, and within the sector, bank stocks have struggled. Over the past year, bank stocks have returned about 17%, which lags the S&P 500, and are down roughly 7% year to date.

With the challenges for the industry come opportunities, however, as investors can find some great bank stocks at very cheap valuations. And the best value among bank stocks right now is Bank of America (NYSE: BAC).

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Bank of America is a Warren Buffett favorite

Bank of America is the nation's second-largest bank and the third-largest holding in the Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) portfolio. Former Berkshire CEO Warren Buffett has always loved bank stocks, and Bank of America is one of his favorites, having held it since 2011.

That right there is a pretty solid endorsement, but don't take Buffett's word for it. Bank of America stock is extremely cheap right now, trading at 11 times forward earnings with a five-year price-to-earnings-to-growth (PEG) ratio of 0.92. A PEG ratio below 1 indicates that the stock is undervalued relative to its longer-term earnings expectations.

The bank's stock is currently a bargain compared to JPMorgan Chase, which is trading at nearly 14 times earnings and has a PEG ratio of 1.60.

Bank of America is seeing healthy deposits

One of the signs of strength for Bank of America is its deposit franchise. In the first quarter, the bank increased its deposit balances by 3%, marking the 11th straight quarter of increases. Deposits are up 32% from pre-pandemic levels, making the bank the leader in consumer deposits.

This is key for a few reasons. One, it shows customer loyalty and that its deposits are sticky. This loyalty means that it can offer lower interest rates on deposits because customers aren't leaving for higher rates due to the broad services that Bank of America offers. This, in turn, allows it to generate higher net interest income (NII) -- the spread between what it gains in interest from loans versus what it pays out in deposits.

That resulted in a 9% year-over-year increase in NII in the first quarter. It also caused the bank to raise its guidance for 2026 NII by 6% to 8%, according to the first-quarter earnings call.

Analysts project 22% upside for BAC

Bank of America stock has struggled this year, mainly due to economic uncertainty, as banks tend to struggle in weaker or uncertain economies.

But the higher-for-longer interest rate environment that we seem to be in right now should be a good thing for the bank. When rates are in this general range, they are not high enough to suppress loan activity and thus produce high NII.

Should rates come down a bit, that would still be a sweet spot for Bank of America as it could spur more loans, mortgages, and spending at still-high interest rates.

Barring an economic meltdown in which credit quality tanks, Bank of America should be well-positioned to surge in the second half of 2026 and beyond, given its low valuation. Wall Street analysts see the potential: 85% rate the stock a buy, with a median price target of $61.50, suggesting a 22% return over the next 12 months.

Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and JPMorgan Chase. The Motley Fool has a disclosure policy.