Banking stocks face risky macroeconomic conditions. The United States recently upped its plans to borrow more money, a move that resulted in soaring treasury yields. The Federal Reserve has continued raising interest rates in an effort to beat inflation, but rising gas prices can indicate more inflation is around the corner. More inflation means more rate hikes.
While issues like rising gas prices will resolve themselves once the temperature gets cooler, rising prices add another layer of macroeconomic uncertainty. These uncertainties, combined with recent bank defaults, have resulted in a 2% year-to-date gain for the iShares S&P 500 Financials Sector fund (OCTMKTS:ISRUF).
These unimpressive gains don’t look good for the banking industry, but some investors view economic uncertainty as an opportunity to get their favorite stocks at lower prices. If you are that type of investor, consider loading up on these three top bank stocks before macroeconomic conditions improve.
Capital One (COF)
Unlike most bank stocks, Capital One (NYSE:COF) has performed well this year, earning a 22% year-to-date gain for investors. The company reported $1.4 billion in net income in the second quarter.
Although this number represents a year-over-year decline, the stock still trades at a reasonable 9 P/E ratio. Capital One is one of the larger banks in the industry, with a $43 billion market cap and $444.2 billion in assets under management at the end of 2022. Warren Buffett’s $1 billion investment in Capital One is also giving shareholders another reason to be optimistic.
Capital One stock currently has a price-to-book ratio under 1 and a dividend yield above 2%. The annualized dividend is currently $2.40.
In the Q2 press release, CEO and founder Richard D. Fairbank stated that the company’s modern technology infrastructure has expanded the bank’s opportunities. These investments can help the bank continue to deliver for shareholders.
Comerica (CMA)
Comerica (NYSE:CMA) has not yet returned to its March 2023 price. Shares are down by over 20% from that price point. Other banks have recovered or parried more of their losses from that point.
However, the company’s second-quarter results indicate a rally can be in the cards. Comerica reported $273 million in net income which marked a 4.6% year-over-year improvement. Also, revenue was up by 8.8% year-over-year. Another quarter of net recoveries enables excellent credit quality and suggests the stock can command a higher price in the future.
Shares would have to leap by 25% to retain their early March levels before the Silicon Valley Bank news broke out. The stock has an attractive 5.50 P/E ratio and a 5.30% dividend yield for investors who accumulate shares now. Comerica has been a slog for investors over the past five years. But a short-term opportunity exists for investors who want a high margin of safety.
PNC Financial (PNC)
PNC Financial (NYSE:PNC) is down by roughly 15% from its March starting point. The company recently released its Q2 results, showing $1.5 billion in net income. Although the year-over-year increase is minimal (less than 1%), higher net income can help the stock get closer to its March levels.
PNC Financial also announced a dividend hike. The quarterly payment will go from $1.50 per share to $1.55 per share. This payment went out to shareholders on August 5th and represents a 3.3% year-over-year increase in the dividend.
New PNC Financial investors will end up with a dividend yield closing at 5%. PNC Financial has $325 billion in assets under management.
Just like Comerica, PNC Financial hasn’t been the most rewarding stock to own over the past five years, but it presents a decent margin of safety at the current price level.
On this date of publication, Marc Guberti 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.
