As bank stocks recover, should you jump in? The novel coronavirus, and near-zero interest rates, pushed the sector to multi-year lows back in March. But, with the pandemic less of a tailwind than expected, the big banks have recovered significantly since the spring.
Yet, there’s still plenty left on the table for those entering today. Shares in major banks may have risen significantly off their lows. But, across-the-board, they remain far below their pre-pandemic highs. This may not last for long.
Even as the new virus lingers, the American economy continues to stage a comeback. As the overall economy improves, so do the prospects for the big banks. In short, there’s a good reason why names in the sector could make a full recovery sooner rather than later.
Given this factor, buying bank stocks continues to be a strong opportunity. Here are five names to buy today, and hold through at least the end of 2020:
- Bank of America (NYSE:BAC)
- JPMorgan (NYSE:JPM)
- Truist Financial (NYSE:TFC)
- U.S. Bancorp (NYSE:USB)
- Wells Fargo (NYSE:WFC)
Sure, some of these major banks face stronger prospects than others. But, as the overall tide lifts all boats in the sector, these five names are all set to trend higher as we enter the final stretch of 2020, and look forward to 2021.
Bank Stocks to Buy: Bank of America (BAC)
At around $26.50 per share, BAC stock has bounced back big-time since hitting prices as low as $17.95 per share. But, the major bank stock, a good proxy for the overall health of the U.S. economy, has a way to go before it retraces its pre-pandemic prices (around $35 per share).
So, can Bank of America continue to trend higher? Definitely! As our own Luke Lango wrote last month, macro-economic improvements will drive positive revenue growth at BofA. Coupled with today’s historically low interest rates slowly climbing higher, the company’s earnings should see improvement, giving investors plenty of reason to bid shares higher.
And that’s not all! Warren Buffett buying shares hand-over-fist helps to support the case that shares are a screaming buy at today’s prices. Granted, Wall Street hasn’t been as enthusiastic about this stock as the legendary investor. But, with the aforementioned macro improvements on the horizon, the overall investment community may soon change their tune.
Sure, this probably isn’t the kind of stock that’s going to double in a year. Even getting back to its pre-outbreak prices could take some time. But, given the low likelihood shares fall back to prior lows, the risk/return in BAC stock remains in your favor.
Sometimes you have to pay up for quality. And that’s the case with JPM stock. Compared to its money center peers BofA, Citigroup (NYSE:C) and Wells Fargo, shares in this banking giant trade at a premium valuation (168% of tangible book).
This high price-to-book ratio alone makes it sound like JP Morgan is fully priced. However, like its big bank peers, shares remain far below their pre-pandemic prices. Shares change hands today around $102 per share, versus just below $140 per share before the novel coronavirus hit the U.S.
So, how can the stock continue to trend higher, even with its richer valuation? As this pundit put it, the bank’s 15% year-over-year revenue increase in the recent quarter bodes well for shares. Earnings were depressed by a $10.5 billion write-down, but expect said earnings to bounce back as the overall U.S. economy improves.
In short, there’s plenty of upside on the table. Instead of the stock treading water due to a premium valuation, expect it to move in tandem with the other big bank names.
Truist Financial (TFC)
This super-regional banking giant, the result of the BB&T–SunTrust merger, is another major bank stock to consider. TFC stock has seen similar price action as its rivals. Like the money center names, shares tumbled as the outbreak hit America. And, like BofA, Citi and JPMorgan, the stock has made a partial recovery in the subsequent months.
With Truist moving in-line with the sector, will shares continue to trend higher? It’s possible. As seen from the last quarterly earnings report, the company’s non-consumer banking businesses (investment banking, insurance) are helping it beat the analyst community’s still-tempered expectations.
For the second quarter, the company posted adjusted earnings of 82 cents per share, versus the Street’s estimate of 73 cents per share. In a solid position, Truist is still situated for the anticipated recovery. And, as the macro environment turns more in the banking sector’s favor, expect strong performance through the end of 2020.
U.S. Bancorp (USB)
Granted, with a tangible price-to-book ratio of 1.6, USB stock doesn’t look like a value play. But, when you factor in the stock’s solid 4.45% dividend yield, as well as its strong underlying fundamentals, this is a name you can’t ignore as the sector-at-large stages a comeback.
As this commentator noted, U.S. Bancorp sports a wide economic moat. With higher margins and return on equity than its peers, this bank has more in common with JPMorgan than a high valuation: this bank is also a high-quality play.
Considering this quality factor, this super-regional banking name should see a strong recovery as the macro picture continues to improve. And, as things are getting better, not worse, don’t expect today’s solid dividend yield to go away. With the company itself stating it expects to maintain the current payout, income investors can sleep well at night.
And for those looking for appreciation rather than yield? USB is one of those bank stocks that has you covered. Given that shares remain more than 38% below their 52-week high, there’s plenty of recovery driven upside left on the table.
Wells Fargo (WFC)
Compared to other bank stocks, Wells Fargo wasn’t exactly in a good place before the outbreak. Still struggling due to its fake accounts scandal a few years back, an asset cap imposed by the government limited this bank’s potential.
Unable to grow organically, the company turned to buybacks and dividends to move the needle for WFC stock. But, with the crisis, these aren’t on the table at the moment.
However, this struggling bank doesn’t just have the specter of an improved economic environment in its corner. As I wrote back on Jul 21, it’s a “darkest before the dawn” scenario with Wells Fargo.
How so? Firstly, the company’s plans to slash $10 billion of annual operating expenses means the bank has a solid plan to bounce back to prior levels of profitability. Also, at today’s low valuation (shares trade for just 79% of tangible book value), the risk of further downside is more than priced-into shares.
In short, if the macro picture improves, and the bank succeeds in its turnaround, expect shares to move substantially higher than where they trade today. At $25 per share, a full recovery to pre-outbreak prices would mean a nearly 100% return for investors.
And, what if the company fails to deliver? With shares still near their 52-week low of $22 per share, it’s hard to see the stock falling further from here. Yes, this isn’t a quality play like JPMorgan or U.S. Bancorp. But, for a small position, consider this out-of-favor bank stock a top name to buy as the overall sector stages a recovery.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.