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 profit spread the bank can earn by investing and writing loans.
The stock market has been on edge recently as interest rates have surged higher. While a huge increase would be dangerous for some sectors, the reality is the Federal Reserve has to get very aggressive as it waited much too long before taking action. There is a good chance the Fed starts raising rates as early as March.
To put things in perspective, note that the benchmark one-year Treasury trading up to a 1.79% handle and the 30-year long bond at 2.07% are nothing compared to the 5% yields both bonds had in the summer of 2007.
The bottom line for investors is that the top large-cap financials likely will post some very solid numbers this week and next. So we screened our 24/7 Wall Street research database looking for bank stocks that are rated Buy. These four look very attractive and can be bought in front of the quarterly reports.
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 several 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 1.71% dividend. Barclays has a $58 price target on the shares, which is above the $50.21 consensus target and Tuesday’s closing print of $49.21. The bank is expected to report earnings Wednesday the 19th.
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This top bank stock backed up some recently and is offering an outstanding entry point. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations, governments a broad range of financial products and services.
Citigroup offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. It operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.