While there are still plenty of earnings reports to come, the financials for the most part are done for the quarter, and analysts have had a chance to review that data and make some observations as we are now into the second half of the year. One thing is for sure: Interest rates, which have moved somewhat higher, are still at generational lows, and some banks that analyst felt may be winners in a higher rate scenario may have to wait for some time.
A new research report from Deutsche Bank takes a long look at the results, and the analysts feel that one group looks like a superb bet for the rest of 2017. They noted this in the report:
We continue to believe that capital market businesses have the most leverage to less regulation and a stronger economy. At the same time, we worry most regionals are overly dependent on higher rates with little underlying growth besides net interest margin expansion. Within the Market Sensitive group, we continue to prefer names with leverage to fixed income, currencies and commodities (FICC) trading, and where there’s good operating leverage.
Four top stocks are among those rated Buy, and they all have solid capital markets exposure.
This continues to be the gold standard of Wall Street banks and trades at a reasonable 12.1 times estimated 2017 earnings. 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. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.
The analysts note that despite slower FICC trading in the first half of 2017, other trading areas performed better, and with shares still down 8% year to date, this superb company remains a solid buy for investors wanting a position in financials.
Goldman Sachs shareholders are paid a 1.35% dividend. The Deutsche Bank price objective for the shares is $255, and the Wall Street consensus target is $237.04. The stock closed Wednesday at $222.25 a share.
This stock trades at a reasonable 13 times estimated 2017 forward earnings and could respond good in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms, and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today formed through the merger of retail bank Chase Manhattan and investment bank JPMorgan.
The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.
The bank recently raised the dividend to $0.56 from $0.50, which was ahead of Deutsche Bank’s $0.55 estimate. The firm also sees share buybacks of $19.4 billion of stock through 2018, versus their prior estimates of $13 billion.
JPMorgan investors are paid a solid 2.18% dividend. Deutsche Bank has set its price target at $90. The posted consensus target is higher at $94.10. The shares closed Wednesday at $9.93 apiece.