Q3 Earnings: What to Expect From the Banks

As we move deeper into earnings season, one of the closely watched sectors is going to be the financial stocks.

For the past few years many of the bigger banks have been showing profits as a result of lower loan losses that allowed them to release reserves into earnings. As conditions have normalized, we will see a lot less of this activity and banks will have to show real revenue and earnings growth. Many of them are going to find this difficult as loan demand, particularly for mortgages, remains weak and regulatory costs have risen sharply. The low-level of interest rates is constraining net interest margins, and it is not an easy task for banks to grow profits right now.

We have a ton of banks reporting this week and it is critical to use Portfolio Grader to separate the strong form the weak in this sector. Citigroup (C) is always on of the most closely watched banks, but I am telling you to avoid speculating on any recovery in this banking giant. C stock has been a “sell” or “strong sell” since last November and is still a “sell” today. Astoria Financial (AF) is another bank that reports this week and is rated “sell” by Portfolio Grader.

Most of the larger well known banks reporting soon are rated as “holds” right now. If you own shares of Bank of America (BAC), JP Morgan (JPM), Fifth Third Bancorp (FITB) or BB&T (BBT), there is no need to do anything with your shares in for not earnings. I would not suggest buying any new positions until we see the earnings and any changes in their Portfolio Grader ranks.

If you are looking to own bank shares, focus on those that have proven they can grow profits and earnings at a high enough rate to be favorably ranked by Portfolio Grader. These will be the banking institutions that exceed Wall Street’s estimate and attract renewed buying pressure form the large funds and institutions.

Comerica (CMA) is on the list of wining bank stocks.  Comerica has benefited from the strong economy in its home state and has posted four consecutive positive earnings surprises. Analyst have been steadily raising their estimates for the next two years in the past few months, which usually leads to higher stock prices. Portfolio Grader upgraded CMA stock to a “B” last month, and Comerica shares are a buy before earnings this week. Other “buy-rated” banks reporting earnings over the next few days include Bank of New York Mellon (BK), Bank the Ozarks (OZRK) and Huntington Bancshares (HBAN).

Using Portfolio Grader to rank stocks can help you won the best ban stocks as we go into this earnings season.

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Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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