4 Top Banks to Buy as Rates Are Going Higher in December

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PNC Financial Services

This top regional bank was down almost 20% in the first six weeks of 2016 but has rebounded smartly. 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. With consistent earnings growth and a very positive and growing loan portfolio, the company is a premiere super-regional bank stock to own.

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.

Top analysts also cite the bank’s impressive Basel III common equity tier 1 ratio of 10.0%, which well exceeds the 8.5% level that they feel the company needs to run a conservative but very profitable bank.

PNC shareholders receive a 2.43% dividend. Merrill Lynch has a $98 price target. The consensus target is posted at $92.78. Shares closed Wednesday at $90.38.

Wells Fargo

This large cap bank is another stock for investors to look at now for safety, dividends and solid upside potential. 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, and he raised his holdings in the bank to 10% on the stock’s weakness earlier this year.

The company reported inline results and earnings revisions, which didn’t go over well after the other major banks posted big earnings. Wells Fargo also had a recent public relations headache as it was revealed that employees allegedly opened up client accounts that were not approved. Things got worse recently as its CEO was absolutely eviscerated at a congressional hearing by politicians in an election year, and he has resigned under pressure. The dip in the stock due to the bad publicity could be a solid purchase level for long-term investors.

Wells Fargo shareholders are paid a 3.35% dividend. The Merrill Lynch price target is $48. The consensus target is at $50.21. Shares closed Wednesday at $45.32.

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The banks as a whole have underperformed this year as compared to other sectors. With that in mind, they may hold more overall value in a pricey market. The combination of steady rate increases and an improving economy could bode well for all of them.