Banking, finance, and taxes

Financials Have Struggled This Year: Analyst Says to Buy the Big 3

While the market has had a very up and down year, with the S&P 500 up just over 3%, one sector that has struggled as we stay mired in a low interest rate scenario is the financials. In fact, the financials are up a meager 0.11%, as of the close Friday. In a new report, Oppenheimer is very bullish on financials that are big players in the equity capital markets arena.

Typical a big part of the equity capital market arena is initial public offerings and secondary offerings. Three companies dominate that space on Wall Street, and Oppenheimer likes all three of them on a technical basis as a top new money ideas.

Goldman Sachs

This company continues to be the gold standard of Wall Street banks. 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, and the firm continues to be a dominant force around the world. The bank is one of the most sought after in the world, and it is one of the very few firms that dictate who can be a client.

In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1 trillion of announced transactions last year, the highest level since 2007. It has also maintained a leading market share over the past 25 years. It maintained a market position when M&A 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 shareholders are paid a 1.3% dividend. The Thomson/First Call consensus price target for the stock is $207.75. Shares closed Monday near that level at $204.66.

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JPMorgan

This stock trades at a very low 11.4 times estimated 2015 earnings. JPMorgan Chase & Co. (NYSE: JPM) is expected to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on 2015 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 an earnings headwind next year.

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 2015 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.

JPMorgan investors are paid a 2.7% dividend. The consensus price target is $70.41. Shares closed on Monday at $66.42.

Morgan Stanley

Morgan Stanley (NYSE: MS) is another one of the white glove Wall Street firms that continues to show tremendous growth, and it is running neck and neck with Goldman Sachs as the bank of choice for high-profile IPOs. Trading at a price-to-earnings multiple of 12.9 times estimated 2015 earnings, that seems extremely reasonable given the 2015 expectations for EPS growth of more than 20%. The company also has $539 billion in cash equivalents on its balance sheet, versus $288 billion in total debt.

Morgan Stanley recently raised its dividend to $0.15 and will buy back up to $3.1 billion in stock after the Federal Reserve System signed off on the company’s plan in the first quarter. Morgan Stanley says it will buy back the stock over five quarters, starting this quarter.

Morgan Stanley investors are paid a 1.6% dividend. The consensus price objective is $39.96. Shares closed Monday’s trading at $38.33.

ALSO READ: 4 Stocks to Buy for the Coming Interest Rates Increases

The Oppenheimer technical specialists are focused on stocks to buy that have good technicals that are backing up solid fundamentals. They think the equity capital markets theme is a winning one, and these are the top companies in that game.

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