- When interest rates are on the move, it’s always a good idea to start considering the best bank stocks to buy now.
- Bank of America (BAC): One of Warren Buffett’s favorite stocks.
- Citigroup (VS): The Oracle of Omaha recently became a fan of this pick.
- Bancorp East-West (EWBC): Started in 1973 focusing its efforts on the Chinese-American community.
- JPMorgan Chase (JPM): Analysts like it, even though the stock is down sharply this year.
- Wells Fargo (WFC): finally seems to be putting its scandals in the rearview mirror.
When interest rates rise, I always think it’s a good idea to take a closer look at which bank stocks to buy. This is because they have a better chance of making a profit in a rising interest rate environment. When the Federal Reserve raises its rates, the net interest margin also increases. Net interest margin is the difference between the interest banks earn on assets and what they pay to depositors and creditors in interest.
Of course, rising interest rates are only one factor in banking activity these days. You cannot assume that all institutions will benefit equally from a rising interest rate environment. And don’t forget that there are many other pressures on the economy, such as Russia’s invasion of Ukraine, high energy prices, and the moratorium on federal student loan repayments.
Oppenheimer analyst Chris Kotowski is pretty bullish on banks right now. He says loan growth and rising interest rates are generally good for those picks. And if the economy did fall into a recession, today’s banking industry “would fare better than any recession in history.”
So what are the best bank stocks to buy right now? To answer this question, I selected US banks that have a consensus rating of “buy” or better from the analysts covering them. I also looked for stocks that offer a dividend to investors.
I came up with five stocks that made the list. Let’s take a closer look at each.
|BAC||Bank of America||$35.40|
Bank of America (BAC)
could Bank of America (NYSE:BAC) use good news? Definitively. BAC’s stock is down nearly 24% this year.
That’s even after a pretty good earnings report, in which it beat analysts’ expectations by posting revenue of $23.2 billion. Experts had predicted $23.1 billion. Earnings per share (EPS) was 80 cents, which was better than the 75 cents EPS analysts expected.
Analysts have a consensus price target of $48.28, which is 36% better than the current price. In addition, the BAC share offers a dividend of almost 2.5%.
Need more conviction? Bank of America is one of Warren Buffett’s favorite stocks, being the second largest holding in Berkshire Hathaway (NYSE:BRK.ANYSE:BRK.B) wallet.
Based in New York Citigroup (NYSE:VS) also had a strong first quarter. It beat analyst estimates for revenue and profit. Citigroup achieved a turnover of 19.2 billion dollars in the first quarter against 18.2 billion dollars expected by analysts. It earned $2.02 per share against expectations of $1.55 per share.
But like Bank of America, the C stock is suffering. This is down nearly 18% over the year. However, it is better than the stock BAC, and even better than the S&P 500, which flirted with bear market territory in May.
Buffett is a recent C-stock convert. Berkshire Hathaway revealed it acquired 55.15 million shares, making it Buffett’s 15th position.
Analysts have a consensus price target of $66.45 on the C stock, giving it 28% upside potential. And on top of that, Citigroup is currently offering a whopping 3.9% dividend yield.
East West Bancorp (EWBC)
It’s a name on the list that isn’t a so-called big bank stock. But based in California Bancorp East-West (NYSE:EWBC) is not a business to be taken lightly. With a market capitalization of nearly $10 billion and total assets of over $60 billion, East West Bancorp got its start in 1973 focusing its efforts on the Chinese-American community.
It now has more than 120 locations in the United States and China, as well as a full banking license from Beijing. Its US locations are spread across California, Nevada, Washington, Texas, New York, Georgia, and Massachusetts.
First-quarter earnings included $495.4 million in revenue, which beat analysts’ estimates of $481.5 million. EPS was also a pleasant surprise, coming in at $1.66 versus $1.53 per share that analysts had predicted.
EWBC stock is down 14% so far this year, but analysts don’t expect that trend to continue. The consensus price target is $98, which is a 43% upside. On top of that, East West Bancorp offers a dividend yield of 2.3%.
JPMorgan Chase (JPM)
That brings us back to one of the big banks, and they really don’t get any bigger than JPMorgan Chase (NYSE:JPM). It currently boasts a market capitalization of $367 billion.
First quarter earnings were above market expectations. Revenue of $31.6 billion beat analyst forecasts of $30.9 billion. Earnings per share of $2.76 were also better than expectations of $2.69.
But investors punished JPM shares because the bank’s profits were down 42% from a year ago and revenue was down 5%. The company blamed the increased costs on bad debts and the Russian invasion of Ukraine.
Even though JPM stock is down 23% year-to-date, analysts paint a rosy picture. The consensus price target of $157.43 is 26% higher than the current stock price. JPM stock currently pays a dividend yield of 3.4%.
Wells Fargo (WFC)
I did not expect to see Wells Fargo (NYSE:WFC) as the fifth and final name in my search. The beleaguered bank has faced numerous problems in recent years, including a 2016 investigation which showed employees had opened more than 2 million fraudulent accounts in order to obtain bonuses.
Then there was a 2017 report that the bank incorrectly fined over 110,000 mortgage customers for missing a deadline when it was really the bank’s fault. After that, there was a 2018 report that Wells Fargo had to refund millions to customers after it incorrectly added services like pet insurance to customers’ accounts without their knowledge.
First quarter earnings were mixed. The company beat analysts’ estimates with EPS of 88 cents versus 80 cents. But revenue of $17.6 billion was lower than analysts’ forecast of $17.8 billion. Wells Fargo has blamed the problem on a drop in mortgages – and it’s a problem that will continue for the foreseeable future.
But analysts see light at the end of the tunnel. Even though WFC stock is down nearly 16% so far this year, it has a consensus price target of $60.01 on the stock. That’s 40% better than today’s price.
When you also consider that Wells Fargo offers a 2.3% dividend yield, it’s no wonder analysts are starting to think differently about WFC stocks.
At the date of publication, Patrick Sanders held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.