Is Bank of America the best buy from the KBW Bank Index? I don’t believe it is. Here’s why I feel this way and two possible alternatives.
BAC Stock Is Fairly Valued
The last time I wrote about Bank of America was Aug. 14. At the time, I had mixed feelings about owning its stock.
“Down the road, [Warren] Buffett will probably look like a genius loading up on Bank of America stock. I’m not nearly as confident about its long-term prognosis. The banks have generally underachieved since 2008,” I wrote.
“Under $20, BAC is a bargain. Around $27, I think it’s fairly valued. If you’re buying for three to five years, I don’t see a problem buying its stock. Just don’t expect to get rich quickly.”
On Aug. 14, it was trading around $27, which I described as fairly valued. As I write this more than a month later, it’s a few dollars lower. If it drops below $20, I’d say it’s still a big-time buy. Right now, however, it seems stuck in the mid-$20s.
InvestorPlace contributors John Jagerson and Wade Hansen, who specialize in technical analysis, recently suggested as much, stating, “Without big news on the horizon, we don’t expect a lot of movement from BAC.”
So, if you’re looking for a bargain, you’re not likely to find it. That said, you’re also not likely to make much on your BAC stock bet in the weeks and months ahead. If you’re not a patient investor, BAC isn’t your best bet at this point.
Here are two I like from the KBW Bank Index that could deliver greater profits than BAC in the near term.
A Bank for Innovation and Growth
It might not be as big a bank in terms of total assets compared to Bank of America, but SVB Financial (NASDAQ:SIVB) makes up for its lack of stature relative to Buffett’s favorite bank with quality of earnings.
In early June, Oppenheimer initiated coverage on the entrepreneurial bank with an “outperform” rating and a $329 target price. In the weeks since, other analysts have gotten more positive about SIVB stock, including JPMorgan, which raised its 12-month target price in July by 10% to $275.
As for its average target price, it’s $255, providing about 6% upside based on its current share price. Of the 20 analysts covering its stock, 12 have it as a buy, one analyst rates it as overweight, seven are a hold, and just one is a sell.
In July, SIVB announced second-quarter results that included beating the $2.96 consensus estimate by almost 50%. SIVB has exceeded earnings expectations in three out of the last four quarters. On the top line, it had revenue of $881.8 million in the second quarter, beating the analyst estimate by 16% and 2.2% higher than a year earlier.
Year-to-date, SIVB is down 3.1% (total return) compared to -29.3% for BAC. Over the past 10 years, SIVB has delivered five times the performance for its shareholders.
As I said in August, SVB Financial is one of my 10 NASDAQ stocks to buy and hold for the long haul. If I could only own one bank stock, this would be it.
JPM is Another Possibility
I’ve always believed that of the big bank stocks, JPMorgan (NYSE:JPM) is the best of the bunch. In my most recent article about Jamie Dimon’s bank in early September, I argued the bank’s fintech initiatives make it an excellent long-term buy.
“JPM stock might trade at 1.5 times book, but the moves it’s making behind the scenes suggest it’s worth it. If you’re a buy-and-hold investor, JPMorgan stock is a buy,” I wrote.
My InvestorPlace colleague, Faisal Humayun, recently argued that JPM was a screaming buy.
“I am completely in sync with this view and I believe that JPM stock is a core portfolio stock from the banking sector. With negative returns of 13.8% in the last one year, the stock is a ‘screaming buy.’”
I couldn’t agree more.
While BAC stock remains reasonably priced at current values, if you’re looking to bet on bank stocks in the near term, JPM and SIVB are better buys right now. Long term, I’d still buy SIVB, but all three ought to deliver decent returns compared to some of the other bank stocks in the index.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.