Banking & Finance

Merrill Lynch Very Positive on the Mega-Cap Bank Stocks


This stock trades at a very low 9.7 times estimated forward 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 throughout this 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.

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JPMorgan investors are paid a 2.84% dividend. The Merrill Lynch price target is $73, and the consensus target is $73.36. Shares closed on Friday at $61.93.

Wells Fargo

This large cap bank is another stock for value investors to look at now. Wells Fargo & Co. (NYSE: WFC) was hit hard in the sell-off as investors feel that the possibility of interest rate increases may get pushed out yet again. The Merrill Lynch analysts like the bank’s diverse business model, which protects against current low rates.

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. Which the analysts feel could aid a big return of capital to shareholders. The stock remains a top Warren Buffett holding.

Merrill Lynch likes the stability, yield and some asset sensitivity that the big bank offers, and investors looking to add financials to their portfolio could do well buying shares. The firm also likes knowing that the bank has little exposure outside of the United States.

Wells Fargo shareholders are paid a solid 2.9% dividend. The Merrill Lynch price target is $58, and the consensus is set at $59.02. Shares closed Friday at $52.14.

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While the recent rally in the markets has been nice for weary investors, the bottom line is volatility at higher levels may be here to stay for some time. Owning neglected financials makes sense for long-term growth portfolios.