Three big bank stocks to buy show promise for a recovery, despite risks keeping investors wary amid stubbornly high inflation and the potential of a recession later this year.
The three big bank stocks to buy should be better positioned than smaller regional banks to withstand the current economic headwinds, according to market observers. Nonetheless, muted economic outlooks by some observers, combined with relatively high cash levels and expectations for lower short-term rates, suggests that pessimism is close to levels seen at market lows of the past 20 years, according to BofA Global Research.
Such poor sentiment suggests the 3,800 floor in the S&P will hold for now, but may be followed by a rally to 4,100-4,200, according to the investment firm. Investors currently prefer large caps over small caps, along with quality trumping junk bonds, as the recent shift out of banks was the fastest seen since Russia’s invasion of Ukraine, BofA added.
Three Big Bank Stocks to Buy Despite Macroeconomic Headwinds
The broad macroeconomic picture shows signs of weakness, with employment indicators deteriorating on a year-over-year and sequential basis in recent weeks, BofA opined. Despite rate increases, the unemployment rate in March was 3.5%, down 10 basis points, or 0.10%, from February.
As wage growth eases, the Fed will continue to consider relatively strong unemployment levels and the price indices in setting future rate hikes. While there have been signs of prices cooling, BofA Global Research is less optimistic for a soft landing and expects a mild recession to begin in second-half 2023.
Adjusted retail and food sales, along with credit card balances, are up on a year-over-year basis, as consumers keep spending amid high inflation. Plus, the mortgage backdrop has become progressively more difficult, and higher interest rates are leading to lower originations overall amid worsening affordability, BofA wrote.
Three Big Bank Stocks to Buy Despite
In the Fed’s recent monthly report, the U.S. central bank announced that “loans to commercial banks” jumped to $345.5 billion in March. The Fed’s Discount Window was “wide open,” with the Fed making more short-term loans to banks than it did in the financial crisis of 2008, said Mark Skouen, PhD, who co-heads the Fast Money Alert trading service with seasoned investor Jim Woods.
Mark Skousen co-heads Fast Money Alert.
Bank deposits, which Skousen, a free-market economist, equated to the money supply, fell 2.5% as depositors withdrew billions from their bank accounts. If that trend continues, the United States will be facing a “major credit crunch,” he added.
Skousen wrote to subscribers of his monthly investment newsletter, Forecasts & Strategies, that he laughed when reading the headline of the Federal Reserve monthly report: “The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible and stable financial and monetary system.”
Fed policy is anything but stable, Skousen said.
“While the Biden administration continues to spend money like water, the Fed has imposed a tight money policy, which is likely to create an inflationary recession this year,” Skousen wrote to his subscribers.
Skousen Has Track Record of Profiting in Banking Stocks
Even though investing in banks now is not without real risk, Skousen notched a profit of nearly 8% in just 43 days during 2021 by recommending shares of New York-based Signature Bank (OTCMKTS: SBNY) in Fast Money Alert. Skousen also has recommended banking stocks and call options in his Home Run Trader advisory service.
In Home Run Trader, Skousen recommended US Bancorp (NYSE: USB) for a 3.22% gain during 2007. The next year, Skousen recommended buying Bank of Montreal (NYSE; BMO) for a 10.43% profit, before offering another bullish call in 2012 when he recommended Westpac Banking Corp. (NYSE WBK) before it jumped 13.92%.
Jim Woods, who heads the Bullseye Stock Trader advisory service, while also teaming up with Skousen in Fast Money Alert, recommends both stocks and options. The Bullseye Stock Trader advisory service, is only down in two of its current six recommendations, despite the current market volatility.
Jim Woods heads Bullseye Stock Trader.
Woods wrote in his May 2023 Successful Investing newsletter that banks and the financial sector essentially had free money through minimal interest rates for more than a decade. The Fed then jacked up rates within about 10 months to levels last seen in the 1990s, with the resulting financial stress contributing to the failure of Silicon Valley Bank and others, he added.
Three Big Bank Stocks to Buy Despite Industry Challenges
Bank of America (NYSE: BAC), of Charlotte, North Carolina, is a stock favored by Michelle Connell, who heads the Dallas-based Portia Capital Management. One of the big incentives to owning shares in the bank is its nearly 3% dividend yield that pays shareholders to stay patient for the financial sector to rebound.
Michelle Connell heads Portia Capital Management.
“Since the mortgage and financial crisis of 2008 and 2009, Bank of America has rebuilt its dividend payment record,” Connell continued. “In the last eight years, Bank of America has continued to increase its dividend.”
Bank of America just posted strong metrics for its latest quarter, Connell told me. As the second-biggest bank in America, behind only JPMorgan, Bank of America beat its earnings expectations, reported record inflows of $37 billion in cash deposits from new and existing clients and attracted 14,500 new clients through its Merrill Lynch brokerage and private bank unit, she added.
Despite speculation among forecasters that further bank failures may be afoot, Bank of America’s net interest income met expectations and its leaders are offering guidance of meeting analysts’ estimates in the near term, Connell counseled.
Three Big Bank Stocks to Buy include Those Who Aided First Republic Bank
Another sign of strength is that Bank of America was one of 11 financial institutions that contributed to the $30 billion used shore up First Republic Bank, Connell said. BAC’s Chief Executive Officer Brian Moynihan has done an “amazing job” at the helm since 2010, Connell added.
Moynihan knows his client base and understands how to grow and deliver profits during all phases of an economic cycle, Connell said. Despite Bank of America’s share price sliding 18.45% in the past year and 9.48% so far this year, Berkshire Hathaway’s Chairman and Chief Financial Officer Warren Buffett remains “enamored” with the stock, Connell commented.
Indeed, Bank of America is Buffett’s largest bank holding and his second-largest overall stock position, Connell continued. As far as Bank of America’s potential upside, Connell estimated its share price could rise about 20% from current levels.
Bank of America appears undervalued, Connell indicated, with a price-to-earnings ratio (P/E) ratio of 8.97. The modest P/E gives the bank a “very compelling” price point, Connell said.
“The bank has a solid balance sheet and fundamentals that should help it continue to perform for its clients and stockholders,” Connell said.
Chart courtesy of www.stockcharts.com
JPMorgan Chase Is Among Three Big Bank Stocks to Buy
Another of the three big banks to buy is New York-based JPMorgan Chase (NYSE: JPM), with a $417.2 billion market capitalization. JPMorgan Chase is recommended as a buy in a recent BofA Global Research report, and it fits the investment bank’s description as a “mega-cap bank” that is preferred to regional banks, given its superior liquidity position, diversified revenue profile and credit defensibility.
For example, JPMorgan Chase produces a hefty amount of its revenue internationally and that non-domestic focus is expected to grow, BofA wrote in its research note. JPMorgan continues to invest in China, but cautiously.
The big bank’s management is seeking to grow its business in the Middle East, with Dubai a particular focus, given capital migration into the region. BofA put a $153 price objection on JPMorgan in late February. Positive developments could include better-than-expected credit quality and better interest rate defensibility, BofA wrote.
Chart courtesy of www.stockcharts.com
Citigroup Rounds out Three Big Bank Stocks to Buy
New York-based Citigroup (NYSE: C), with a market capitalization of nearly $100 billion, is another big bank stock that BofA views as a buy. Citigroup built its own brokerage platform but partnered to enter into the insurance business.
The bank’s management continues to hire financial advisers with the goal of adding new clients and funds under management to its business. High net worth individuals with $5-20 million in assets are a coveted niche for growth, BofA wrote.
On the commercial banking side of Citigroup’s business, deposit growth is slowing but its retail deposits are gaining better than the industry, BofA noted. Wealthy customers are moving money into certificates of deposit (CDs) and fixed income products, but the bank’s multi-product offerings are helping to limit attrition.
The bank’s management also is eyeing digital marketing to contribute 30% of its deposit growth. Citigroup’s multi-pronged growth strategy impressed BofA bank analysts to assign the stock a price objective of $60.
Chart courtesy of www.stockcharts.com
CDC Sees Rising Vaccinations Against New Bivalent Variant of COVID-19
The U.S. Centers for Disease Control and Prevention (CDC) reported at least one vaccination against COVID-19 and its bivalent variant has been given to 269,971,358 people, or 81.3% of the U.S. population, as of April 19. Those who have completed the primary COVID-19 doses totaled 230,485,008 of the U.S. population, or 69.4%, according to the CDC.
Also as of April 19, the United States had given a bivalent COVID-19 booster to 52,117,186 people who are age 18 and up, equaling 20.2% of America’s population. Medical studies have shown vaccinations help to keep people healthy and reduce the morbidity from contracting COVID, potentially boosting confidence of consumers to shop at stores, travel and otherwise spend money.
The three big bank stocks to buy offer a way for investors to ride the inevitable recovery of financial services giants whose stock prices have slipped in recent weeks.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. He is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.