3 Bank Stocks You Don’t Want to Overlook This Week

Rising interest rates, deregulation and lower taxes are great news for bank stocks

Bank stocks

Source: Tim Evans Via Unsplash

Bank stocks have been on fire since Election Day, and for good reason. Since the financial crisis in 2008, it has been a tough road for banks in the U.S. Historically low interest rates coupled with unprecedented federal regulations have made it nearly impossible for banks to grow their earnings. Banks have been forced to boost capital ratios during a time when net interest margins have been their thinnest in history.

However, the lean times forced banks to cut every last cent of costs and shore up their balance sheets to comply with new regulations. Now that the banks are running like well-oiled machines, Donald Trump’s election will potentially open up a floodgate of bank earnings.

The Federal Reserve is likely looking to continue raising interest rates on a regular basis. Trump has promised to ease corporate regulations across the board. And finally, a Republican in the White House and a Republican-controlled Congress likely means major corporate tax cuts will be on the way soon.

There’s no question bank stocks are more expensive than they were just a couple of months ago. However, there may be plenty more upside in certain regional banks, considering a new cycle of bank earnings growth has likely just begun.

Bank Stocks You Don’t Want To Overlook: BB&T (BBT)

Bank Stocks You Don’t Want To Overlook: BB&T (BBT)

BB&T Corporation (NYSE:BBT) has been making all the right moves throughout the down cycle for banks and is well positioned to be one of the major beneficiaries of a more favorable environment in coming years. Even when organic revenue growth was hard to come by, BBT aggressively grew its business via acquisitions such as Bank of Kentucky Financial and Susquehanna Bancshares.

The stock is up 16.4% since Election Day, but long-term investors shouldn’t let that rise scare them away. BBT stock is still a solid value. Its forward price-to-earnings ratio is under 15, and its net interest income is up 17.9 percent since mid-2015. Now that interest rates are rising, that growth should really begin to take off.

BBT stock also pays a relatively high 2.6% dividend, which the company boosted another 7% last year.

BB&T reports earnings on Jan. 19. Long-term investors shouldn’t sweat the fourth-quarter numbers because things are looking up for BBT regardless of a Q4 beat or miss. Any post-earnings dip could especially be a buying opportunity.

Bank Stocks You Don’t Want To Overlook: Fifth Third Bancorp (FITB)

Bank Stocks You Don’t Want To Overlook: Fifth Third Bancorp (FITB)

Fifth Third Bancorp (NASDAQ:FITB) is another relatively low-risk way for long-term investors to get exposure to what could be the beginning of a multiyear earnings growth cycle for bank stocks. First Third is already up 26% since Election Day, but the stock’s price-to-tangible-book-value is still within its typical range since 2008. It may seem like FITB stock has gotten more expensive, but its P/TBV is actually 6.7% lower than it was three years ago.

FITB hasn’t generated explosive earnings growth lately, but it has been steady and reliable. EPS is up 22.4% since the beginning of 2014. Net interest income is up 1.2% in that time. Expect both those numbers to get a big boost in the next several quarters.

Like BBT, FITB also pays a decent dividend at 2.1% and has been aggressively buying back shares. It has reduced its share count by up to 5% in recent quarters, which should help provide support for the stock. No matter what Q4 number FITB stock reports on Jan. 24, the company is well-positioned as a long-term investment.

Bank Stocks You Don’t Want To Overlook: KeyCorp (KEY)

Bank Stocks You Don’t Want To Overlook: KeyCorp (KEY)Even though KeyCorp (NYSE:KEY) has made the biggest move of the three bank stocks since Election Day, up 24.6%, it may still be the best value. Of the three stocks mentioned in this article, KEY stock has the lowest forward P/E and the lowest PEG ratio. It is also the only bank of the three to have double-digit annual earnings growth projections over the next five years.

Like the other two banks, KEY has already been growing net interest income even before the potential benefits of the Trump administration kick in. Net interest income is up 12% in the past three years, but the growth really started to accelerate in 2016.

KEY stock pays a slightly lower dividend at only 1.9%, but management is aggressively growing that dividend. The company boosted its payout by 13% in 2016 and will up it another 11% in 2017.

Rising interest rates, falling tax rates and a regulatory reset is a recipe for success for KEY. Any post-earnings dip after the company reports on Jan. 19 could be an excellent long-term entry point.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/bank-stocks-fitb-key-bbt/.

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