Financials got hit hard yesterday on some of the biggest selling we have seen so far in 2017, and while the road could stay bumpy for a while, the sell-off is giving investors a chance to look at buying some of the big banks. That’s a positive as the banks may end up being some of the biggest beneficiaries of policies that are expected to take hold over the next year.
A new research report, RBC continues to stay very positive on the banks, and the firm maintains that the major themes that keep it bullish are still in place. The report cites four reasons for the continued bullishness.
- The economy is getting stronger.
- RBC expects more stimulative fiscal policies from the Trump administration.
- The analysts also expect less regulation.
- Higher interest rates should come with an advantageous yield curve.
The analysts also remain positive on the larger cap stocks, and we found four of the biggest that are rated Outperform that still look like good long-term buys.
Bank of America
The company posted solid first-quarter results, and it expects a significant increase in net interest income for the current 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 some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform.
The company reported quarterly revenue that handily beat consensus estimates and was up 7% from a year ago. And earnings blew out expectations. This is very good news, as Bank of America’s business continues to improve at a faster-than-expected pace.
Bank of America investors receive a 1.33% dividend. The RBC price target for the stock is $26, and the Wall Street consensus target is $26.07. The shares closed Wednesday at $22.57, down almost 5% on the day.
This top bank is trading at the same level it was in the summer of 2015. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.
Trading at a still very cheap 10 times estimated 2018 earnings, the bank looks very reasonable in what is becoming a pricey stock market. A continuing stock buyback program is a big positive. The company’s institutional clients group appeared to be holding its ground last quarter, and while guidance released in January was conservative and somewhat disappointing, it is cheap at this level.
Citigroup investors receive a 1.07% dividend. The $65 RBC price target compares with the consensus price objective of $64.85. Shares closed most recently at 59.98.
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 company reported solid first-quarter results and continues to take advantage of revenue opportunities in new markets and with the credit card business.
Investors are paid a solid 2.34% dividend. RBC has a $95 price target. The consensus target is $94.10, and shares closed Wednesday at $84.27.
This large cap bank is another stock for investors to look at now for safety, dividends and solid upside potential. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.
Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding.
First-quarter earnings were somewhat disappointing as spread revenues and efficiency were lower than estimates. In addition, a confusing Investor Day message, along with a slower spread income outlook, drove shares down almost 10% over the past two weeks. Top analysts feel the company is laying the foundation this year for a much better earnings outlook starting in 2018.
Wells Fargo shareholders receive a 2.91% dividend. RBC has set its price target at $60, and the consensus target is $57.59. Shares closed Wednesday at $52.24.
Sticking with the big money center leaders makes sense, especially with some volatility creeping back into the overall markets. While the near term could get rocky, the long-term outlook for all these large cap leaders is solid.
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