Bank stocks have had an impressive rally this year. The SPDR S&P Bank exchange traded fund (NYSEARCA:KBE) is up 32% year-to-date and has posted steady gains despite persistent market volatility.
Big U.S. lenders are back in vogue with investors as the economy reopens, consumers spend, and the prospect of higher interest rates looms on the horizon.
Despite the recent bull run, many analysts forecast that the rally in bank stocks is likely to continue throughout this year.
As banks continue to outperform the broader stock market, we take a look at four of the best bank stocks to bet on despite the sector’s climbing valuations.
Best Bank Stock Bets: Bank of America (BAC)
While it’s up 35% year-to-date, Bank of America’s stock is still one of the most affordable among the major U.S. banks at $41.79 a share.
BAC stock also remains the favorite bank stock of famed investor Warren Buffett. Buffett trimmed his holdings of all the bank stocks he owns in this year’s first quarter except for Bank of America. The Oracle of Omaha continues to hold more than one billion shares of Bank of America stock, a position he built last summer at the height of the pandemic.
Aside from Warren Buffett’s endorsement, there are many reasons to buy BAC stock. Bank of America is currently the second-largest lender in the U.S. with assets of $3 trillion.
In this year’s first quarter, Bank of America generated $8.1 billion in net income, or $0.87 per share, double the amount from a year earlier. The bank is also better diversified than many of its competitors, generating revenue from consumer banking, wealth management, investment banking, and analytics. This diversification enables Bank of America to perform well in good and bad market cycles.
For the first quarter ended March 31, Citigroup, the fourth-largest bank in the U.S., reported that its revenue declined by 6.8% from the same period of 2020 to $19.32 billion.
However, Citigroup’s revenue was still up 17% from the previous fourth quarter. The bank’s operating income increased 213% year-over-year to $7.98 billion, while its earnings-per-share came in at $3.62, up 242% from a year ago. Those impressive results were delivered despite the global pandemic.
Also, Citigroup recently announced a partnership with the aforementioned Bank of America to build a new industry-led independent data and execution platform for fixed-income markets.
The joint-venture promises to create a next-generation trading, data, and analytics platform for structured credit and collateral markets. Plus, Citigroup just declared a quarterly dividend of $0.51 per share that will be paid out to shareholders on May 28. Year-to-date, C stock is up 27% to $76.09 per share. What’s not to like?
Best Bank Stock Bets: Wells Fargo (WFC)
WFC stock has had one of the best rallies among banks so far in 2021, up 59% year-to-date at $46.11 a share.
However, Wells Fargo stock took a hit recently when a filing with the U.S. Securities and Exchange Commission (SEC) revealed that Warren Buffett has sold 99% of his stake in the bank, a total of 51.7 million shares.
Buffett now owns only 675,054 shares of Wells Fargo valued at just over $30 million. The sale came as a shock as Wells Fargo had been a cornerstone of Buffett’s portfolio since 1989.
Buffett even stuck with Wells Fargo as the company struggled to clean up a massive fake accounts scandal that had depressed its share price. The exact reasons why Buffett unloaded the majority of his WFC stock isn’t clear, but Wells Fargo is likely to weather this minor setback.
Many analysts continue to see fair value in the third-largest U.S. bank despite its impressive rally this year. The largest mortgage lender in America, Wells Fargo reported better-than-expected first-quarter results, with revenue of $18.1 billion, 2% more than in the year-earlier quarter.
State Street (STT)
Investors interested in a smaller bank should check out Boston-based State Street.
The second oldest continually operating bank in the U.S., State Street got off to a slow start this year but has rallied 20% since the end of January to its current level of $84.09 per share.
The lender has a lot to recommend it, including a rock-solid balance sheet, a growing international reach, and new technological upgrades that it undertook over the past year.
The lender did recently take a hit after it agreed to pay a $115 million criminal penalty to resolve U.S. Department of Justice charges that it secretly overcharged customers for back-office expenses.
As part of the settlement, State Street admitted that from 1998 to 2015 it defrauded customers out of more than $290 million through hidden mark-ups and charges. While not great for the bank’s reputation, the resolution of the charges has removed a cloud that was hanging over STT stock, clearing it to test new highs.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.