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Where are BNY Mellon Stocks Heading in 2023?

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BNY Mellon stock (NYSE: BK) currently trades at $50 a share, around 22% lower than its level of $64 on February 9, 2022 (pre-inflation shock high), and appears undervalued. BNY Mellon saw its stock trading at around $42 at the end of June 2022, just before the Fed started increasing rates, and is trading 20% above that level now. In comparison, the S&P 500 gained about 23% during this period. The stock price has underperformed the broader index as investors are cautiously optimistic toward financial sector stocks due to the fear of a potential recession and difficult macroeconomic conditions, despite the recovery in net interest income driven by improvement in the interest rate environment.

BK stock has shown strong gains of 25% from levels of $40 in early January 2021 to around $50 now, vs. a similar change for the S&P 500 over this roughly 3-year period. However, the increase in BK stock has been far from consistent. Returns for the stock were 37% in 2021, -22% in 2022, and 10% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 21% in 2023 (YTD) โ€“ indicating thatย BK underperformed the S&Pย in 2022 and 2023. In fact,ย consistently beating the S&P 500 โ€“ in good times and bad โ€“ has been difficult over recent years for individual stocks; for heavyweights in the Financial sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT.
ย In contrast, the Trefisย High Quality (HQ) Portfolio, with a collection of 30 stocks, hasย outperformed the S&P 500 each yearย over the same period.ย Why is that?ย as a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident inย HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BK face a similar situation as it did in 2022 and 2023 andย underperform the S&Pย over the next 12 months โ€“ or will it see a strong jump?

To return to the pre-inflation shock level, BK stock will have to gain around 28% from the current levels. However, we do not expect that to materialize in the short term and estimateย BNY Mellonโ€™s valuationย to be around $54 per share.ย 

Our detailed analysis ofย BNY Mellonโ€™s upside post-inflation shockย captures trends in the companyโ€™s stock during the turbulent market conditions seen over 2022 and compares these trends to the stockโ€™s performance during the 2008 recession.

2022 Inflation Shock

  • 2020 โ€“ early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
  • April 2021: Inflation rates cross 4% and increase rapidly
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
  • June 2022: Inflation levels peak at 9% โ€“ the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
  • Situation since July 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains likely.

Comparing BK stock and the broader market performance during the 2007/2008 crisis:

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 โ€“ 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

BNY Mellon stock declined from nearly $32 in September 2007 (pre-crisis peak) to below $22 in March 2009 (as the markets bottomed out), implying BK stock lost almost 31% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $28 in early 2010, rising 26% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

BNY Fundamentals Over Recent Years

BNY Mellon revenues decreased from $16.46 billion in 2019 to $15.81 billion in 2020 due to a drop in net interest income and fee income.

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