Oppenheimer’s Top Bank Stocks to Buy for the Rest of 2014

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If any Wall Street sector has had headline risk for the past year, and some would say five years, it is the banking sector. Despite a horrible public relations nightmare as the “too big to fail” monsters, ongoing litigation and fines over the housing collapse and mortgage nightmare, and incendiary commentary from pundits, the banks are actually fighting their way to solid profitability.

A new report from the banking analysts at Oppenheimer points out that second-quarter earnings in the aggregate came as close to their expectations as they ever hope to get, with roughly equal amounts of modestly positive or modestly negative deviations. Earnings overall were better than expected, and the rest of the year could come in better as well, if the economic expansion continues.

An improving economy is the key for all the top stocks at Oppenheimer. Even slow growth should help to provide a tailwind to earnings growth. Here are the top banking stocks rated Outperform at Oppenheimer for the rest of 2014.

Bank of America Corp. (NYSE: BAC) has not gotten much love from Wall Street lately. The company is in a much better situation than last year. Earnings are much more consistent, capital has improved and a bigger dividend and share repurchase effort seems very likely. The Merrill Lynch franchise continues to drive earnings at the bank and looks solid for the rest of the year. The bank pays investors a small 0.3% dividend. The Oppenheimer price target is $19. The Thomson/First Call consensus target is $17.31. Shares closed Friday at $15.59.

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Citigroup Inc. (NYSE: C) makes the list at Oppenheimer and is trading at very reasonable 9.9 times forward earnings. In addition, it is still trading 10% below the 52-week high. With a tremendous global business model, the bank is a solid holding for investors. Citigroup still just pays a tiny 0.1% dividend. Oppenheimer has a $68 price target. The consensus price target for the stock is $58.06, and shares closed Friday at $50.03.

CIT Group Inc. (NYSE: CIT) has been consistently striving to expand its market share for the past two years. The company launched Maritime Finance, which offers secured loans to operators of oceangoing and inland cargo vessels, as well as offshore vessels and drilling rigs. The CIT Real Estate Finance business and its online bank have grown and have contributed to revenue growth. All these initiatives are expected to drive earnings going forward. Investors receive a 0.9% dividend. Oppenheimer has a $53 price target, and the consensus target is $52.44. CIT closed Friday at $49.14

Discover Financial Services (NYSE: DFS) is a top pick for investors looking to own one of the top credit card stocks. Many Wall Street analysts think that the company will record higher second-half growth, even above their current expectations. They are now forecasting 6% credit card growth for 2014 and higher full-year expected earnings. A continued strong share repurchase program is also expected. Investors are paid a 1.5% dividend. Oppenheimer has a $74 price target for the stock. The consensus target is $71.04. Discover closed Friday at $62.61.

JPMorgan Chase & Co. (NYSE: JPM) may finally be nearing the end of a very long stretch of losses and penalty pay-outs. Between mortgage settlements and trading gaffes, the company has taken a PR beating over the past two years, and it has still held up well. The latest headline overhang has actually been CEO and Chairman Jamie Dimon’s battle with throat cancer. The mega-cap bank is expected to benefit from commercial loan growth and an upturn in capital spending. Investors are paid a respectable 2.8% dividend. The Oppenheimer price target is $73, and the consensus target is $66.28. J.P. Morgan closed Friday at $59.01.

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Sun Trust Banks Inc. (NYSE: STI) is a top regional bank that the team at Oppenheimer likes. The company reported very solid second-quarter earnings, with profit up nearly 6% for the quarter due to increased lending. The Atlanta-based bank said revenue was up 4.6%, while loans grew by 7.7%. It did caution on lending profitability as a key measure could weaken going forward this year. Investors are paid a 2% dividend. Oppenheimer has a $46 price target, and the consensus is at $42.56. Shares closed Friday at $39.08.