As stocks continue to trade near record highs, a transition is taking place within the market. Old leaders like big-tech and energy and giving way to new areas of strength as buyers seek out areas of value. Big bank stocks are benefiting from this dynamic, as many large-cap names in the sector run up against resistance levels that have contained them for much of the year.
Fundamentally, a number of catalysts are driving interest in bank stocks here.
For one, the recent rebound in energy prices is easing concerns about bond and loan losses to U.S. shale companies. Two, ongoing strength in the labor market and expectations of a second-half GDP rebound are raising expectations of higher long-term interest rates. That in turn will boost bank profitability via expanded net interest margins.
Traders should be keeping an eye on these three bank stocks, then, as they appear ready for big upside breakouts.
Bank Stocks That Could Pop: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) shares are challenging their April-June highs as the year-to-date trading range looks ready to be broken. Sentiment was boosted by BofA’s earnings report. Bank of America reported profits of 36 cents per share on July 18 — 3 cents better than estimates — on in-line revenues. Results were driven by lower credit costs and charge-offs.
BAC will next report results on Oct. 17 before the bell. Analysts are looking for earnings of 33 cents per share on revenues of $21.03 billion.
Edge Pro subscribers are holding an options straddle in BAC centered on the Sep $15 contracts. It’s a bet on either a push to new highs of a return to recent support near $13.
Bank Stocks That Could Pop: Citigroup (C)
Citigroup Inc (NYSE:C) stock has rallied more than 20% from its June low to retake its 200-day moving average and challenge its April-June highs near $47.
On July 15, Citigroup reported earnings of $1.24 per share (vs. $1.10 expected) on revenues of $17.6 billion (vs. $17.5 billion expected) driven by lower expenses and credit losses. Shares are up about 5% since then.
Citigroup will next report results on Oct. 14 before the bell. Analysts are looking for earnings of $1.17 per share on revenues of $17.4 billion.
Bank Stocks That Could Pop: Goldman Sachs (GS)
Goldman Sachs Group Inc (NYSE:GS) shares have surged some 18% off of their post-Brexit low from late June. Now, C stock is challenging resistance from the late April highs. In the process, the 200-day moving average was retaken for the first time since last November.
Investors were pleased with the company’s top- and bottom-line beats on July 19. Earnings of $3.72 per share beat estimates by 67 cents, thanks largely to a 26% drop in operating expenses from last year.
Goldman will next report results on Oct. 18 before the bell. Analysts are looking for earnings of $3.73 per share on revenues of $7.3 billion.
Edge Pro subscribers are holding a position in the September $165 GS calls.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
