Needless to say, after years of subpar economic recovery, everybody is looking for when growth, especially job growth, starts to pick up again. The fact of the matter is, growth in 2015 may once again be tepid as nervous employers keep hiring slowly. A new report from the banking analysts at Baird says the best strategy for investors is to buy banks that don’t need macroeconomic improvement to meet current earnings estimates for next year.
With most banks trading near fair value, without higher interest rates or growth in the economy, 2015 could prove to be a difficult year. The Baird team is focused on five top stocks to buy, all of which they rate at Overweight.
Capital One Financial Corp. (NYSE: COF) is a popular stock with many of the Wall Street firms we cover, and it is rated Outperform at Baird, who are buyers of the stock on any weakness. The company had $205.9 billion in deposits and $298.3 billion in total assets as of June 30, 2014. Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Baird notes the bank has built a solid and less cyclical income stream from relationships with transaction-oriented credit card customers.
Capital One investors are paid a 1.5% dividend. The Baird price target for the stock is $90. The Thomson/First Call consensus target is $92.26. The stock closed Friday at $82.76.
Fifth Third Bancorp (NASDAQ: FITB) is a top regional banking stock that makes the grade at Baird. The analysts feel that the recent pullback in the stock offers investors a solid total return investment play. The company announced last summer an 8.3% hike in its quarterly dividend, and it has repurchased 8 million shares of stock this year. It also recently announced the formation of the Payments and Commerce Solutions division, which combines existing businesses such as Treasury Management, Commercial and Consumer Card, and Currency Processing Solutions with resources specialized in developing innovative commerce-enabled solutions.
Fifth Third investors are paid a 2.6% dividend. The Baird target price is $23, and the consensus figure is slightly lower at $22.87. The stock closed Friday at $20.03.
JPMorgan Chase & Co. (NYSE: JPM), like most of the top money center banks, is expected to benefit from commercial loan growth and an upturn in capital spending. Baird recommended in its report aggressive buying of the stock in the mid-$50s area. The analysts caution that the recent divestiture of the physical commodities business could provide an earnings headwind next year. They add that the improvement in loan growth and a steady increase in deposits should be a plus. Trading at a discount to the other large cap banks on 2015 earnings estimates also helps upside potential.
J.P. Morgan investors are paid a respectable 2.6% dividend. The Baird price objective is $67, and the consensus target is $67.38. Shares ended Friday at $60.45.
PNC Financial Services Group Inc. (NYSE: PNC) is one of the largest diversified financial services organizations in the United States, providing retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. Baird is much more aggressive buyers of the stock close to the $80 mark. The company recently released solid tier one stress test results and remains a top super regional for investors.
PNC shareholders are paid a 2.3% dividend. The Baird price target is $90, and the consensus is put at $92.38. The stock ended trading on Friday at $86.85
Wells Fargo & Co. (NYSE: WFC) is another solid financial name on the Baird list that really may see a benefit if yields start moving higher. The yield curve typically steepens in an improving economy, which many on Wall Street currently anticipate. The Baird analysts feel that the bank does not need higher interest rates in 2015 to hit current forward earnings estimates. 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. An increase in commercial real estate lending could really boost the banks bottom line. It also remains a top Warren Buffett holding.
Wells Fargo investors are paid a 2.6% dividend. The Baird price target is $55, and the consensus target is $54.65. Wells Fargo closed Friday at $53.81.
These solid financials that provide growth and income may make very good sense for the rest of the year and 2015. Investors may want to note the price levels where the Baird analysts are more aggressive buyers and put in good-until-cancelled buy orders there.