Banking stocks took a hammering last year as consumer spending receded amid the coronavirus crisis. As a result, the financial sector was the third-worst performing industry behind real estate and energy 2020. However, the sector is up a healthy 24% so far this year, according to the Financial Select Sector SPDR Fund.
Most major banks are now seeing increased activity after credit metrics tumbled for the better part of 2020. For example, Morgan Stanley (NYSE:MS) states that delinquency and charge-off rates have grown impressively in the past few months. Moreover, major banks have also announced their respective stock buyback programs after the Fed lifted its ban.
Despite the expected turnaround, the sector will continue to feel the Covid 19-led market slowdown after-effects. As a result, Deloitte believes that the industry will have to set aside roughly $254 billion in net loan losses from 2020 to 2022.
Prudent investors need to understand that it’s the ideal time to pile into banking stocks. The three discussed in the article have grown the fastest in terms of earnings growth. So, let’s take a look.
Banking Stocks To Buy: Goldman Sachs Group (GS)
Investment banking giant Goldman Sachs is one of the best value stocks out there. It performed reasonably well during the pandemic, has an incredible outlook, and trades at just 2.5x forward sales. Despite the effects of the pandemic, GS stock generated an 102% return in the past 12 months.
It was firing on all cylinders in the first quarter of fiscal 2021, blowing past analyst estimates. The bank generated $18.06 per share in the quarter, beating estimates by $8.63. Moreover, revenues topped $17.7 billion, growing by 102.50% on a year-over-year basis. Investment banking revenue was at a massive $3.77 billion recording strong revenues in underwriting and advisory.
Goldman Sachs witnessed growth in all its business lines, including those that generate a small fraction of its revenues. It expects to see healthy growth in its transaction banking business which it launched last year, where it already has $30 billion in deposits. Moreover, its forward diluted EPS growth is expected to exceed 18%, roughly 317% higher than the sector average.
Therefore, GS stock has an exciting year of business activity ahead.
Fifth Third Bancorp (FITB)
Fifth Third Bancorp is a highly diversified financial services company primarily operating in the Midwest. It has roughly $205 billion in assets and operates more than 1,000 banking centers.
As with its peers, the business has been sluggish last year. However, its most recent results suggest that things are picking up again for FITB stock.
Fifth Third recently reported its first-quarter results for fiscal 2021, where it witnessed a substantial improvement in its top and bottom line. It was marked by a strong net interest margin, improvements in consumer and commercial portfolios, along record commercial banking revenues. EPS for the quarter was at 93 cents, which comfortably beat 70 cents and its performance in the year-ago quarter. With an improved macroeconomic environment and credit quality, long-term EPS forecasts are at an incredible 17.25%.
JPMorgan Chase (JPM)
JPMorgan Chase is the largest bank in the U.S. in terms of assets and is its most successful megabank. But, more importantly, at this point, it is one of the few banks that has weathered several crises and has emerged from them even stronger than before.
This is perhaps why JPM stock is up a spectacular 70% in the past 12 months.
It’s been tough from an earning standpoint for the bank, but things have started to improve significantly in the past couple of quarters. Its first-quarter results for fiscal 2021 posted over $32 billion in revenues, up over 14% annually. Moreover, its EPS of $4.59 beat estimates by $1.38.
In addition, loan loss reserves were reduced by a massive $5.2 billion, while its asset management and investment banking side remained highly profitable. Looking ahead, its long-term forward EPS are forecasted at 13.50%, which is a testament to its strong positioning.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.