Earnings have been a mixed bag for bank stocks.
Some of the biggest U.S. lenders, such as JPMorgan Chase (NYSE:JPM), missed the mark with their latest quarterly report and their shares have been punished as a result. JPM stock has fallen 10% since the lender disappointed Wall Street with its fourth quarter numbers.
Investment bank Goldman Sachs’ (NYSE:GS) stock also got hit following its Q4 print, falling 13%. However, other banks exceeded expectations and have seen their share price rise as a result.
If there is one thing that the banks have in common it is that they are experiencing cost pressures as a result of wage inflation, as well as labor shortages as the number of people exiting or not returning to the workforce escalates. Yet despite these issues, bank stocks still look attractive, especially with the U.S. Federal Reserve expected to lift interest rates throughout the course of this year.
Here are three of the best bank stocks for investors to buy following their fourth quarter earnings.
Bank Stocks to Buy: Wells Fargo (WFC)
Wells Fargo had arguably the best fourth quarter results among the national U.S. banks. The San Francisco-based lender reported Q4 earnings per share of $1.25, soundly beating the $1.13 expected by analysts. Revenue in the fourth quarter came in at $20.86 billion, also trouncing the $18.82 billion anticipated by Wall Street.
Perhaps most impressive, Wells Fargo’s fourth quarter net income of $5.75 billion was 86% higher than the $3.09 billion recorded a year earlier.
While Wells Fargo’s Q4 results impressed, it was the bank’s forward guidance that led its stock to rise 4% immediately after the earnings were announced on Jan. 14. The company said it expects to cut annual expenses to $51.5 billion this year from a peak of $57.6 billion in 2020.
On the revenue side, management is projecting net interest income will grow to $38.7 billion in 2022 from $35.8 billion last year as interest rates rise this year. The strong results to end 2021 and positive guidance for the year ahead led many analysts to upgrade WFC stock.
WFC stock is up 68% over the past 12 months.
Morgan Stanley (MS)
Investment bank Morgan Stanley also had a strong fourth quarter. MS stock popped 2% higher after the bank announced EPS of $2.01 a share compared to $1.91 that was expected by analysts. Revenue for the quarter amounted to $14.52 billion versus Wall Street’s estimate of $14.60 billion.
Morgan Stanley said that its equities trading revenue in Q4 rose 13% from a year ago to $2.86 billion, while investment banking revenue rose 6% to $2.43 billion due largely to higher advisory fees from mergers and acquisitions.
Morgan Stanley’s better-than-expected results were helped by the fact that the investment bank held its expenses in check. The New York City-based lender reported $5.49 billion in compensation expenses, essentially unchanged from a year earlier. The compensation number stood in contrast to rival Goldman Sachs, which announced that its pay costs in the fourth quarter surged 31% from a year earlier to $3.25 billion.
MS stock is up 33% over the past year.
Best Bank Stocks to Buy: Bank of America (BAC)
Bank of America was the only other major U.S. lender to beat expectations with its fourth quarter results. The Charlotte, North Carolina headquartered bank announced EPS of 82 cents versus 76 cents expected by Wall Street. Revenues in the fourth quarter came in at $22.17 billion, which essentially matched the consensus expectation of $22.2 billion.
The results were helped by the release of $851 million in loan loss reserves, but were still a solid beat that lifted the stock more than 5%.
Bank of America said that its wealth management division grew 16% in the fourth quarter to a record $5.4 billion, helped by rising asset management and brokerage fees, while its investment banking fees jumped 26% to a record $2.4 billion. Chief Executive Brian Moynihan said that higher interest rates and a rebound in loan growth should help to further improve the bank’s profitability this year.
BAC stock is up 42% over the last 12 months.
On the date of publication, Joel Baglole held a long position in MS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.