Earnings season is about to kick into high gear with some of the major financial companies reporting tomorrow. Investors have a lot to digest, so is this an opportunity or a danger?
Results from the big financials are always key, but this go-round is even more important than usual as the market wrestles with the Federal Reserve raising rates – which should be good for financials — and yet bond yields remain stubbornly low. JPMorgan Chase & Co. (NYSE:JPM), for example, has fallen 9% since its all-time high just six weeks ago but remains significantly higher since November’s election.
While earnings on the S&P 500 are projected to grow nearly 9%, expectations for the major banks are actually low — a paltry 0.2% increase over last year. Keep in mind, though, that a low bar often leaves a lot of room for outperformance, which can move stocks higher.
Let’s look at a couple of the most important banks in the world, both of which will release their results early tomorrow.
Citigroup Inc (NYSE:C) is expected to earn $1.24 a share on revenue of $18.07 billion. The whisper number — which is like Wall Street’s private estimate — is higher at $1.30 per share. I also think there’s a good chance C will beat the $1.24 consensus. The company has a large international exposure, and with the developed and emerging markets around the globe generally strong over the last quarter, this could result in a nice boost to the bottom line.
Wall Street is looking for JPM to report $1.52 per share on $24.57 billion in revenue. Once again, the whisper number is higher at $1.59. In the annual report JPM released last week, the company highlighted rising sentiment against globalism and noted that it is preparing for the U.K. exit from the European Union. Because the major banks are global players, it will be important to see if the numbers show any effect from anti-globalism views.
You should also watch for comments on interest rates going forward and the increasingly tense geopolitical situation.
SIVB: A Next-Generation Bank
While I have nothing against the big financials, they have already enjoyed a nice run since the election. And let’s face it, they’ve been around a long time and they are huge. I see better plays out there with more upside and less risk.
One I like is SVB Financial Group (NASDAQ:SIVB), the holding company for Silicon Valley Bank, which is positioned well to take advantage of higher interest rates in the months and years ahead, not to mention continued improvement in the U.S. economy.
As you can tell by the name of the company, it’s located in Silicon Valley, which remains a hub of innovation and technology. This strategic location has been a big boost to the earnings and will continue to be for the foreseeable future. As a matter of fact, it is one of the few companies that have seen their earnings estimates increase over the last month, now up to $1.85 for the first quarter.
As with any stock, there are prime buying and selling opportunities along the way, and I use the charts to determine those. In the big picture, though, SVB is a next-generation bank that is helping finance tomorrow’s technology breakthroughs. That makes it a new way to play financials and a stock to keep on your radar for a long time.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt is currently in the midst of an exciting launch centered around his trademark three-prong investing approach that targets the mega-trends old Wall Street is missing out on. His next-gen investing strategy is delivering enormous profits in stocks and ETFs. Click here for more information on his latest venture.