Banking & Finance

Deutsche Bank Has Big First-Quarter Expectations for Buy-Rated Financial Stocks

For the first time in years, it’s starting to look like the economy is getting some real traction, and real growth may be just down the road. With consumer and investor sentiment at multiyear highs, and the potential for meaningful tax reform and a lower corporate tax rate, American business is very positive, and that bodes well for both the near term and long term.

One sector that is primed to do well in a stronger economy is brokers, asset managers and the financial exchanges. In a new report, while Deutsche Bank does remain cautious on asset managers, it feels that the group may be the best positioned against first-quarter expectations. We screened the report for the top stocks rated Buy.

Bank of New York Mellon

This top bank stock is considerably cheaper than its peers, and a solid buy at current levels. Bank of New York Mellon Corp. (NYSE: BK) provides financial products and services to institutions, corporations and high net worth individuals in the United States and internationally.

The company offers investment management, trust and custody, foreign exchange, fund administration, global collateral services, securities lending, depositary receipts, corporate trust, global payment/cash management, banking services and clearing services. It also provides mutual funds, separate accounts, wealth management and private banking services, as well as broker-dealer services and registered investment advisory services.

The analysis noted in a recent report:

We expect positive operating leverage in 2017 assuming modest revenue growth & 2 Fed hikes in 2017. With an additional Fed hike, expect to capture nearly 100% of money market fund waivers. Expect investment and other income line to be lighter than 2016 (~$60-$80 million per quarter in 2017).

Shareholders receive a 1.6% dividend. The Deutsche Bank price target for the stock is $54, while the consensus target stands at $51.72. The shares closed Wednesday at $47.00.

CME Group

This company had a record 2016, and 2017 looks very promising as well. CME Group Inc. (NASDAQ: CME) exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options. CME Group brings buyers and sellers together through its Globex electronic trading platform and its trading facilities in New York and Chicago.

The company also operates CME clearing, one of the world’s leading central counterparty clearing providers, which offers clearing and settlement services across asset classes for exchange traded contracts and over-the-counter derivatives transactions.

The company’s non-U.S. business is growing, and with West Texas Intermediate oil increasing relevance as a global benchmark, that is another positive for the trading giant.

CME investors receive a 2.35% dividend. Deutsche Bank has a $136 price target, and the consensus target is $129.33. Shares closed on Wednesday at $117.55.

Charles Schwab

The iconic discount broker looks solid from a technical standpoint. Charles Schwab Corp. (NYSE: SCHW) is a leading provider of brokerage, banking and investment-related services to consumers and businesses. It has two business segments: 1) Investor Services, which provides retail brokerage, banking, advice and other financial services, and 2) Institutional Services, which provides business to business services to independent investment advisors, and to company benefit plan sponsors.

The company reported a solid quarter in January, with results that came in right in line with the Wall Street estimates. The company held its business update last week and provided financial guidance and sensitivities, as well as an update on strategic initiatives, which included cutting its commission on trade from $8.95 to $6.95.

Trading was only 11% of revenues in 2016 so the commission cut won’t have much profit and loss impact. Management offered baseline guidance for 2017, and that guidance doesn’t include an interest rate increase. Top analysts on Wall Street feel the company can generate expect 20% or more earnings-per-share growth in 2017 and 2018.

Shareholders receive a 0.81% dividend. The $46 Deutsche Bank price target is about the same as the $46.20 consensus. The stock closed Wednesday at $39.48.

E* Trade Financial

This is another top discount brokerage firm, and it could be offering investors a solid entry point here. E* Trade Financial Corp. (NASDAQ: ETFC) is a financial services firm that offers competitively priced brokerage, investing and banking solutions to individuals. The firm has expanded its brokerage and trading offering to banking products, via E*Trade Bank, and investing products and solutions.

E*Trade offers its services online, at branches and through its network of representatives, investment professionals and advisors. The firm has grown organically and via acquisitions throughout its history. The rising market could be a huge boon for the company, and the company’s consistent ad campaigns have helped to drive new customers.

Deutsche Bank has set its price target at $40, and the consensus target is $41.11. The shares closed Wednesday at $34.17.

Needless to say if the stock market rolls over big, these companies could all be affected, but at least for now, they look like good choices for growth accounts.