As we have noted on multiple occasions, one of the few sectors in which companies applaud higher interest rates is the financials. When interest rates are higher, banks make more money by taking advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing deposits and writing loans.
The stock market was on pins and needles recently as interest rates surged higher in October but have retreated some, and while a huge increase would be dangerous for some sectors, the reality is the Federal Reserve probably will not raise interest rates for another year or even two. Plus, with the benchmark 10-year Treasury trading up to a 1.55% handle, and the 30-year long bond at 1.96%, it is nothing compared to the 5% yields both had in the summer of 2007.
The bottom line for investors is it is likely the top large-cap financials will continue to post some very solid numbers like the ones we saw recently. So we screened our 24/7 Wall Street research database looking for stocks of banks, and top brokerage firms redesigned as banks, that are rated Buy. While five look very attractive, it is still important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Bank of America
The company posted very solid third-quarter results and looks poised to do the same for the fourth quarter. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
The bank has expanded into a number of new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Bank of America stock investors receive a 1.75% dividend. Wells Fargo has a $60 price target, and the analysts’ consensus target is $47.18. Tuesday’s closing print was $47.88.