We have reported in great detail about the importance of sector leadership in fulfilling the potential for a secular bull market rally. The Dow Theory maintains that major market trends depend on how the Dow Jones Industrial Average and the Dow Jones Transportation Average behave.
One additional sector that is critical for the success of a secular bull market rally is the financials, as it tends to be a good indicator of individual and corporate fiscal health.
In a new report, the banking analysts at Deutsche Bank A.G. (NYSE: DB) comb through the most recent first-quarter data looking for the bank stocks to buy now. They remain selective overall and continue to prefer stocks that still have leverage to macro themes — such as slowing consumer deleveraging, housing improvement and growth in consumer spending. In addition, capital markets expectations are generally positive ahead of the quarter, given stronger first quarter seasonality, higher market levels and tighter spreads. The Deutsche Bank team believes revenues should be up meaningfully versus the fourth quarter, but possibly down slightly year-over-year.
In their coverage universe of 19 banking names, the analysts currently favor the following six as stocks to buy. They vary in market cap and in the areas of the banking arena that are most profitable to their franchise. The six names are:
Global banking powerhouse Citigroup Inc. (NYSE: C) leads off the list of stocks to buy. It provides a multitude of services to clients around the world, and the stock has rallied nicely from the triple bottom 52-week low from last summer. The Deutsche Bank price target for Citigroup is $53. The Thomson/First Call estimate is $51.30.
Despite a tremendous loss and controversy from its London trader nicknamed “The Whale,” J.P. Morgan Chase & Co. (NYSE: JPM) is another large cap stock on the list. The Deutsche Bank price target for the bank is $53. The Wall St. consensus price target is in line at $54. J.P. Morgan also pays a 2.49% dividend to shareholders.
Speaking of dividends, Cincinnati-based regional Fifth Third Bancorp (NASDAQ: FITB) makes the list and just raised its dividend last week to pay shareholders 2.70%. The Deutsche Bank price target is $17. The consensus estimate is the same at $17.
Superbly run by CNBC regular James Rohr and well-respected on Wall St., PNC Financial Services Group Inc. (NYSE: PNC) makes the list. The Deutsche Bank price target for PNC is $71, while the consensus estimate is at $69.50. The bank also pays shareholders a 2.40% quarterly dividend.
With many of it 428 branches located in Illinois, TCF Financial Corp. (NYSE: TCB) is a much smaller market capitalization stock that makes the Deutsche Bank top six. The Deutsche Bank price target is $14 and the stock is trading above that, so it may be revised soon. The consensus estimate for the bank is also $14. Shareholders are paid a quarterly 1.40% dividend.
Rounding out the bank stocks to buy is Minneapolis-based U.S. Bancorp (NYSE: USB). With more than 3,000 branches and almost 65,000 employees, this is truly a super-regional bank. The Deutsche Bank price target is $38. The consensus target is $37. The bank pays a 2.30% dividend.
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The Deutsche Bank research team places a high premium on banks that have diversified business models. With regulations stricter as a result of the bank meltdowns that followed the mortgage debacle, it makes sense for investors to use solid due diligence when buying bank stocks. Good research could very possibly lead to solid investment gains.