4 Top Banks to Buy for 2018 as Interest Rates Go Higher

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PNC Financial Services

With consistent earnings growth and a very positive and growing loan portfolio, this top pick in the sector at RBC is a premiere super-regional bank stock to own. PNC Financial Services Group Inc. (NYSE: PNC) is one of the country’s largest diversified financial services organizations. It provides retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; and wealth management and asset management.

Wall Street analysts point to numerous positives, including the bank implementing huge cost savings plans. The bank is working on up to $100 million of new savings announced last year, and it is also applauded for outstanding credit/risk management and the limited exposure to the capital markets related areas, while focusing on traditional banking.

The company also posted solid third-quarter results, as total revenue increased 2% to $4.1 billion. PNC continues to generate positive operating leverage. Net interest income grew 4% to $2.3 billion, primarily due to higher loan yields and balances. Net interest margin increased seven basis points to 2.91%.

PNC shareholders are paid a 2.18% dividend. The $145 RBC price target compares with the consensus target of $140.17 and the most recent close at $138.17 a share.

Wells Fargo

Investors now may want to look at this large cap bank as a solid value play. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding.

The company has massively underperformed the banking index this year. Wells Fargo posted quarterly revenue of $21.93 billion, missing the $22.4 billion consensus estimate from analysts polled by Reuters. The bank did report slightly better-than-expected earnings per share of $1.04, excluding 20 cents per share in charges related to litigation for a mortgage-related regulatory case from before the financial crisis. Net interest income rose nearly $500 million from a year earlier to $12.48 billion, but it missed expectations of $13.14 billion projected by FactSet.

Wells Fargo remains a show-me story, but is possibly the cheapest of the banks for investors looking for larger upside potential.

Wells Fargo shareholders receive a decent 2.8% dividend. RBC has set its price target at $60. The consensus price target is at $57.73, and the shares were last seen trading at $55.50.

Three banks that had awesome results, and one still fighting its way back and remains a great value buy. With the Federal Reserve expected to raise rates in December, and again in 2018, these stocks make good long-term holdings in growth accounts.