The failure of Silicon Valley Bank (SVB), the second biggest failure in U.S. bank history, clearly has left a nasty taste in the mouth of hedge funds and institutional investors. In fact, net exposure to financials across Wall Street sat just off the lowest levels in decades before Friday, and net exposure to banks is also effectively at the lowest level since 2010. In addition, short sellers laid the wood to financials in March to the tune of $10 billion, and financial short interest as a percentage of market capitalization is at the highest among all the sectors at a stunning 2.2%. The Wall Street axiom about buying when there is blood in the streets may be in play here after some big money center banks posted strong numbers on Friday.
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While regional and smaller banks may still come with a degree of risk, as they could face the same liquidity issues SVB did, the mega-cap leaders that pay solid and dependable dividends make sense for investors with a long-term horizon. We found six stocks that are rated Buy and look like great ideas for a strong bounce higher. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Bank of America
This is one of the biggest in the country, and Buffett owns a stunning 1.1 billion of its shares. 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.
Bank of America 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.
The bank is expected to post first-quarter results on April 18, and if it follows the lead of the banks that reported last Friday, it should do very well.
Shareholders receive a 2.98% dividend. Oppenheimer has a $44 target price on Bank of America stock. The consensus target is lower at $40.43, and the shares closed on Friday at $29.52.
BlackRock
While not a money center bank, this may be one of the best investments in the financial world. BlackRock Inc. (NYSE: BLK) is a publicly owned investment manager and the world’s largest asset manager. The firm primarily provides its services to institutional, intermediary and individual investors, including corporate, public, union and industry pension plans, insurance companies, third-party mutual funds, endowments, public institutions, governments, foundations, charities, sovereign wealth funds, corporations, official institutions and banks. It also provides global risk management and advisory services.
BlackRock manages separate client-focused equity, fixed income and balanced portfolios. It also launches and manages open-end and closed-end mutual funds, offshore funds, unit trusts and alternative investment vehicles, including structured funds. The firm launches equity, fixed-income, balanced and real estate mutual funds. It also launches equity, fixed income, balanced, currency, commodity and multi-asset exchange-traded funds. The firm launches and manages hedge funds, and it invests in the public equity, fixed-income, real estate, currency, commodity and alternative markets across the globe.
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BlackRock primarily invests in growth and value stocks of small-cap, mid-cap, large-cap and multi-cap companies. It also invests in dividend-paying equity securities. The firm invests in investment-grade municipal securities, government securities (including securities issued or guaranteed by a government or a government agency or instrumentality), corporate bonds and asset-backed and mortgage-backed securities. It employs fundamental and quantitative analysis with a focus on a bottom-up and top-down approach to make its investments. The firm employs liquidity, asset allocation, balanced, real estate and alternative strategies to make its investments. In the real estate sector, it seeks to invest in Poland and Germany.
BlackRock’s reported adjusted profit of $7.93 per share topped the consensus estimate. Net inflows for the first quarter were at $110 billion, up from $86 billion a year earlier.
Investors receive a 2.89% dividend. BofA Securities has set its target price at $868, but BlackRock stock has a consensus target of just $786. The shares closed on Friday at $691.33.
Citigroup
This top bank stock has rallied nicely off the lows, and Warren Buffett bought $2.5 billion worth of the shares last summer. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations and governments a broad range of financial products and services.
The company offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. And it operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still very cheap 7.0 times estimated 2023 earnings, this stock looks very reasonable in what remains a volatile stock market and in a sector that has dramatically lagged. Its first-quarter earnings and revenue each surpassed Wall Street expectations, thanks to a rise in fixed-income trading.
Citigroup stock comes with a 4.12% dividend. Oppenheimer’s $75 price target is a Wall Street high. The consensus target is $55.88. Friday’s $49.56 close was up almost 5% for the day on the strong results.
JPMorgan
This stock trades at a still reasonable 12.0 times estimated 2023 earnings. 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 was formed through the merger of retail bank Chase Manhattan and investment bank J.P. Morgan.
JPMorgan has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.
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Top analysts are very positive on the stock, largely because the industry titan faces a continued broad recovery in nearly every aspect of its business:
- Leading M&A advisory and capital markets product set and market share
- Massive footprint of corporate and commercial banking customers
- Sizable wholesale payments businesses.
The company has proven that it has the wherewithal to continually invest in people, products and platforms to further its market share base, extending its competitive advantage versus most peers.
The bank posted exceptionally strong earnings across almost all metrics in the first quarter of 2023, though it has taken reserves of $1.1 billion for the uncertain macro environment. Revenue beat expectations by a stunning $2.3 billion.
The dividend yield here is 2.88%. The Barclays price objective is $179, while the consensus target is $158.37. JPMorgan Chase stock closed over 7% higher on Friday at $138.73 after the stellar earnings print.
PNC Financial Services
This bank has a huge client base and has expanded in a big way over the past decade, and it is among the top 10 largest U.S. banks by assets. PNC Financial Services Group Inc. (NYSE: PNC) operates as a diversified financial services company in the United States through the following three segments.
The Retail Banking segment offers checking, savings and money market accounts, as well as certificates of deposit. It offers residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans, and personal and small business loans and lines of credit, as well as brokerage, insurance and investment and cash management services. This segment serves consumer and small business customers through a network of branches, ATMs, call centers and online and mobile banking channels.
The Corporate & Institutional Banking segment provides secured and unsecured loans, letters of credit and equipment leases, as well as cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting. it offers securities underwriting, loan syndications, customer-related trading and mergers and acquisitions and equity capital markets advisory related services, and also commercial loan servicing and technology solutions. It serves midsized and large corporations and government and not-for-profit entities.
Its Asset Management Group segment offers investment and retirement planning, customized investment management, credit and cash management solutions and trust management and administration services for high net worth and ultra-high net worth individuals, and their families, as well as multi-generational family planning services for ultra-high net worth individuals and their families. It also provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and fiduciary retirement advisory services for institutional clients.
PNC reported a profit of $3.98 per share in the quarter that exceeded the consensus forecast. Deposits for the first quarter ended March rose some to $436.8 billion as customers moved to larger and relatively safer regional banks in the aftermath of the banking crisis.
PNC Financial Services stock investors receive a 4.92% dividend. The $167 Barclays target price is well above the $151.21 consensus target and the most recent close at $121.85.
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Wells Fargo
This large-cap bank is perhaps the best solid value play for 2023, and it also benefits from higher net interest income. Wells Fargo & Co. (NYSE: WFC) is a diversified financial services company that provides banking, investment, mortgage and consumer and commercial finance products and services in the United States and internationally.
Its Consumer Banking and Lending segment offers diversified financial products and services for consumers and small businesses. Financial products and services include checking and savings accounts, and credit and debit cards, as well as home, auto, personal and small business lending services.
The Commercial Banking segment provides financial solutions to private, family-owned and certain public companies. Its products and services include banking and credit products across various industry sectors and municipalities, secured lending and lease products and treasury management services.
The Corporate and Investment Banking segment offers a suite of capital markets, banking and financial products and services to corporate, commercial real estate, government and institutional clients. Products and services include corporate banking, investment banking, treasury management, commercial real estate lending and servicing, equity and fixed income solutions, as well as sales, trading and research capabilities services.
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