If it weren’t for the downtrodden energy sector, the financial stocks included in the S&P 500 index would be the worst-performing sector over the past year. Financial sector stocks are down more than 14% (energy sector stocks are down more than 40%), and the damage has been greater since the beginning of 2020, with financial stocks down nearly 21%.
Generally speaking, going fishing for the keepers is a dicey business and a guide can often be a big help. One such guide is the Conviction Buy List assembled by analysts at Goldman Sachs, comprising the firm’s top ideas in mid-cap to large-cap companies.
A word of caution, however. It’s not a good idea for investors to use just one firm’s research as the sole indicator to buy or sell a stock. There are always other firms issuing coverage that agrees or disagrees with a rating. It turns out that analysts can be wrong on their investment calls, just like investors can be wrong in their decisions.
That said, here’s a look at nine financial sector stocks that Goldman Sachs recently added to its Conviction Buy list. We’ve included a bit of color about each company and looked at what both Goldman and the analyst consensus expect from the stock.
Goldman Sachs has conferred its Conviction Buy rating on five bank stocks and four financial services companies.
Bank of America Corp. (NYSE: BAC) is one of the country’s largest banks, with a market cap of more than $210 billion. Like its competitors, the bank continues to suffer from low interest rates and for the need to build up reserves against credit losses due to the COVID-19 pandemic. The good news for investors is that the company performed well on the Federal Reserve’s recent stress tests and, while the dividend is safe for this quarter, the Fed will be reviewing that payment in the weeks to come. Goldman has a price target of $28 on the stock.
BofA stock closed at $24.37 on Friday, in a 52-week range of $17.95 to $35.72. The consensus price target on the stock is $28.57, implying a potential upside of 17.2% for the stock, which currently is trading nearly 32% below its 52-week high. The stock trades at about 13.5 times expected 2021 earnings and pays a dividend yield of 2.93%.
Capital One Financial Corp. (NYSE: COF) reported a second-quarter net loss of $2.21 a share earlier this week, as it added $4.2 billion to its provision for credit losses. Even though the bank met its capital requirements under the Fed stress tests, Capital One expects to cut its quarterly dividend payment from $0.40 per share to $0.10 per share in the third quarter. Goldman’s price target on the stock is $87.
This bank’s stock ended Friday at $65.03, in a 52-week range of $38.00 to $107.59. The consensus price target is $78.38, implying a potential upside of 20.5%. It currently trades nearly 40% below its 52-week high, and at about 11.0 times expected 2021 earnings. Capital One pays a dividend yield of 2.45% ($0.40 per share quarterly).
Citigroup Inc. (NYSE: C) is the nation’s fourth-largest bank, with a market cap of more than $107 billion. The highlights of the bank’s second-quarter results were a 48% increase in its institutional trading business and a 68% jump in fixed-income trading revenue. Citi also has set aside some $7.8 billion as a provision against loan losses as a result of the coronavirus outbreak. Goldman’s price target on the stock is $59.
Citigroup’s stock closed at $51.67 on Friday, in a 52-week range of $32.00 to $83.11. The consensus price target of $69.46 implies a potential upside of more than 34% for the stock, which currently trades about 38% below its 52-week high. Shares trade at about 11.6 times expected 2021 earnings and pay a dividend yield of 3.92%.