Citigroup (NYSE:C) chief U.S. equity strategist Tobias Levkovich released his updated list of top stock picks on Oct. 7. Nowhere on the list of 22 companies was Bank of America (NYSE:BAC) or BAC stock. 

Which financials did make the Citi analyst’s list? Lincoln National (NYSE:LNC) and Morgan Stanley (NYSE:MS).  

Here’s why investors might want to forget about Bank of America stock and consider one or both of Levkovich’s two picks. 

Time to Forget BAC Stock 

The last time I wrote about Bank of America stock and the BAC stock price was in early September. BAC was trading at 1.05 times book value, cheap compared to some of its peers, including JPMorgan (NYSE:JPM), which traded at 1.53 times book, 46% higher than BAC stock price.  

Yet, when push came to shove, I suggested that investors wait until the trade war is settled before considering BAC. Further, if they must buy a major U.S. bank, JPM was the best buy. 

Nothing has happened in the month since to alter my opinion. And now, Levkovich’s list comes along and it got me thinking about other possible alternatives to BAC.

Sure, LNC is really an insurance company dressed up as a retirement planner, and Morgan Stanley’s an investment bank masquerading as a wealth management company, but the fact is, most financial services companies have their hands in many pies these days — Lincoln National and Morgan Stanley included.

What’s to Like About Lincoln National Stock

LNC stock has been on Levkovich’s buy list since April 2017. In that time, it actually lost 15.3%. Up 11.2% year to date, including dividends, through Oct. 7, the life insurer has had a bumpy ride over the past year. Over the longer term, LNC’s had decent, if not spectacular returns. 

So, what’s got Levkovich so interested? I personally can’t speak for the man, but I suspect it has something to with CEO Dennis Glass and Lincoln National’s operational efficiency. 

In its most recent September presentation, the company highlighted the fact that it has grown its adjusted operating revenue over the past decade by 5% compounded annually. On the bottom line, it’s grown its adjusted operating EPS by 11% annually over the past decade. 

Not surprisingly, Glass has been CEO for the entire period. He joined LNC as president after his tenure at Jefferson-Pilot, the company he ran before it was acquired by Lincoln National for $7.5 billion in 2006. 

In 2019, Lincoln’s four operating segments are all doing well. 

• Sales for its annuities business increased by 22% in the second quarter over last year; 
• Its retirement plan services’ business saw Q2 2019 recurring deposits increase by 6% year over year; 
• Life insurance sales grew by 30% and earnings by 12% in the quarter; and 
• Lincoln’s group protection business generated higher premiums and a 6.6% after-tax operating margin. 

It continues to generate higher profits, in part, by finding ways to cut expenses without affecting the customer experience. As a result of these rising profits, Lincoln’s been able to repurchase $5.9 billion of its shares between Q2 2010 and Q2 2019, reducing its share count by 43%. 

Over the same period, it has managed to grow its annual dividend by 38% a year. Yielding 2.7%, it continues to provide investors with a good balance between income and capital appreciation.   

Morgan Stanley’s Positives

Levkovich added MS to his buy list in July of this year. At the time it was trading at almost $45. As I write this it’s slightly below $40. Year to date, it has had a crazy run hitting $45 on five occasions, while dropping below $40 on three occasions. 

If you watch this stock like a hawk, you ought to make a significant amount by merely buying on the dips, and holding for the long haul. 

There’s no question that CEO James Gorman has transformed Morgan Stanley into a more well-rounded financial services company that’s less reliant on equities trading, an area that continues to see downward pricing pressure. The company’s wealth management business generates about 43% of its overall revenues; in 2006, they accounted for just 17% of sales. 

For those who believe gender diversity strengthens businesses, as I do, it’s good to hear that Morgan Stanley’s made great strides in this area. 

“We have a really diverse team relative to ten years ago when we started. We’ve got, this year, I think 28% of our managing directors were women. We have now got over 20% of the whole firm managing directors are women. When we started a few years ago, it was around 15%. So, we have made strides. But, listen, there is more to do,” Gorman stated on CNBC in late June. 

As for female directors, Morgan Stanley has four serving on its board out of 13 in total, for a 31% participation rate. Coincidentally, Bank of America also has a 31% participation rate for women serving on its board.   

Also interesting is the fact that both Morgan Stanley and Bank of America are eyeing growth in their respective employee-benefits management businesses. 

Morgan Stanley acquired Solium Capital in May for $850 million. The bank has since renamed it Shareworks, leveraging the company’s management of more than 3,400 stock plans, to diversify into other areas such as health savings accounts, student loan refinancing, and deferred compensation management. 

In 10 years’ time, $850 million will seem like a very reasonable price to pay for long-term growth.  

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.