Despite the bank stocks taking off after the election in early November, one huge wild card remains out there for investors that hold or are considering adding some of the top stocks to their portfolios. That is fourth-quarter earnings results. While the true benefits of the Trump administration initiatives are yet to be realized, the increase in interest rates is a positive, and any increase in overall business could push earnings above current expectations.
In a new Deutsche Bank research report from Matt O’Connor and his outstanding team, they make the case that a strong finish to the year in both fixed-income trading and the debt capital markets could present upside possibilities, versus management comments made last month.
We screened the Deutsche Bank bank research universe and found four companies that may be just the kind of institutions that could benefit from a solid debt-trading scenario. All are rated Buy at Deutsche Bank.
This continues to be the gold standard of Wall Street banks and trades at a reasonable 13 times estimated 2017 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.
In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1.5 trillion of announced mergers and acquisitions transactions last year, the highest level the bank has ever recorded. It also has maintained a leading market share over the past 25 years. It maintained a market position when merger and acquisition activity was dominated by technology in 1999, by financials in 2008 and by natural resources in 2014. The bottom line is, regardless of where market strength is in any given year, Goldman Sachs is up to the task.
Goldman Sachs reported third-quarter numbers that hammered analysts’ estimates. And an improving capital market bodes well for a firm that is a leader in the IPO world.
Goldman Sachs shareholders receive a 1.09% dividend. The Deutsche Bank price target for the stock is $255, and the Wall Street consensus target is $227.12. The stock closed Thursday at $241.32
This stock trades at a reasonable 13.3 times estimated 2017 forward earnings and could respond well in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is expected to continue to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on estimated price-to-earnings and a very solid price-to-book value. Some on Wall Street have cautioned that last year’s divestiture of the physical commodities business could provide earnings headwinds throughout this year.
The company also reported outstanding third-quarter results, and top Wall Street analysts think the results are sustainable going forward. The Deutsche Bank estimates for the bank are above the Wall Street consensus number. Despite being a crowded trade, many analysts feel that the bank’s superior earnings growth should continue stock outperformance.
Improvement in loan growth, terrific equity capital markets and a steady increase in deposits will be a solid plus. Trading at a discount to many of the large cap banks on 2016 earnings estimates helps upside potential as well. With $2.6 trillion in assets on a worldwide basis, and one of Wall Street’s savviest leaders in Jamie Dimon, the stock is a solid buy for investors.
Last year, Dimon put his money where his mouth was and reportedly bought a stunning 500,000 shares of JPMorgan stock for a massive $26 million. That brought his total holdings in the bank to 6.7 million shares, worth over $360 million.
Investors receive a 2.25% dividend. The $90 Deutsche Bank price target compares with the consensus target of $80.45. Shares closed yesterday at $86.11.