This Friday, we will see the first of the big banks report earnings — and, needless to say, investors will be watching closely.
Outside of just individual stock interests, bank earnings can give valuable clues about the overall trends in the economy and financial markets. Loan quality and demand provide valuable information about what is going on in the world today in real estate and consumer markets.
Although most financial stocks have recovered from the lows of a few years ago, many still consider them undervalued and will be looking to buy big banks in advance of earnings. As always, we have Portfolio Grader to help us select the banks with the best fundamentals and strongest possibility of a market-beating performance.
Here’s a look at three of the “Big Four” that look strong heading into their quarterly reports:
JPMorgan Chase (JPM) will report its results for the second quarter before the bell Friday. Right now, JPM is the best of the bigs. The bank is seeing strength across all of its divisions, with mortgage lending recovering, investment banking strengthening (and likely to continue to improve for the balance of the year) and credit quality improving steadily. The “London Whale” incident and fallout appears to be well behind JPMorgan, and the bank’s exposure to the troubled European markets is manageable — at least in the eyes of most analysts. Portfolio Grader actually upgraded JPMorgan Chase to an “A” this week heading into earnings, indicating that JPM is a “strong buy.”
Wells Fargo (WFC) will join JPMorgan at the earnings confessional early Friday, and its results should be OK. The bank has seen steady improvements in its loan portfolio, and reductions in loan loss reserves should be a huge driver of earnings improvement of the rest of the year. However, net interest margins — which have fallen for several quarters in a row — could continue to be a problem for Wells. The recent spike in longer-term rates might help in the balance of the year, but won’t do much for Q2 results. The bank is a huge player in the U.S. housing markets, though, and the improved real estate situation should help WFC’s results hit (and maybe even surpass) analyst estimates. Wells Fargo was upgraded to a “B” back in May, and remains a “buy” this week.
Citigroup (C) will announce results Monday before the bell, and analysts are not expecting much. Earnings should be roughly in line with the first quarter and about a 17% improvement over the year-ago period. As with Wells Fargo, releases from loan loss reserves should provide an earnings boost for Citigroup. Capital markets have been the big driver of profits at Citi, so it will be heavily dependent on trading volumes and profits in the quarter. The bank delivered a solid Q1, and the stock has since been upgraded to a “B.” The shares remain a “buy” before Monday’s report.
Louis Navellier is the editor of Blue Chip Growth.