Bank Stocks That Could Be Set to Break Higher in 2022
With so many stocks off to a turbulent start in 2022, investors that are interested in putting some money to work need to be extra careful at this time. Equity markets are becoming increasingly bifurcated, as value stocks are outperforming growth stocks given the complex factors at play with the Federal Reserve and the economy. This could be a trend that continues to play out over the next few months, which is why it pays to focus on areas of the market like the financial sector that offer reasonable valuations and are exhibiting relative strength.
Several narratives support adding shares of the best bank stocks at this time, including a continued recovery for the economy and impending interest rate increases from the Fed. It’s also worth noting that many of these bank stocks have been consolidating their 2020 gains for months, which tells us that investors have been accumulating shares for what could be another leg up. With appealing dividends, rock-solid balance sheets, and attractive P/E ratios compared to the S&P 500, these are companies that could certainly be worth adding in the coming weeks.
Here are 3 best-in-breed bank stocks to buy now:
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If you are an investor that expects the Federal Reserve to take action quickly in order to combat the impacts of inflation, Bank of America is probably the best way to play rising interest rates. That’s because it’s a company that has one of the highest levels of Net Interest Income versus competitors in the sector, which means Bank of America’s revenue will jump the most if interest rates go up. It’s also a company with one of the strongest brand names in consumer banking, with a truly unparalleled network of retail branches and services including home mortgage lending, vehicle lending, credit and debit cards, and small business services.
There’s plenty to like about the company’s Global Wealth & Investment Management business, which delivered 16.8% year-over-year net revenue growth in Q3. With total client balances recently hitting a record high of $3.69 trillion, it’s clear that more affluent and wealthy investors are trusting Bank of America with their business than ever before. Finally, the fact that Bank of America stock is hitting highs not seen since the early 2000s tells us that there is plenty of demand for shares in a market chalked full of uncertainty.
Morgan Stanley (NYSE: MS)
This leading financial services company is a fantastic option for investors that are interested in exposure to the sector, as its operations in investment banking, securities, and investment and wealth management provide a stable business model that investors should be able to count on through thick and thin. Morgan Stanley is nicely positioned to take advantage of rising interest rates, which should provide a boost to the company’s revenue, while risks like inflation and an uneven economic recovery could continue driving trading revenue up throughout the year. The company reported revenue of $14.8 billion, up 26% year-over-year, in Q3, and is poised to deliver another strong report on January 19th.
Investors should keep an eye on how the stock performs before the earnings release, as there’s a chance Morgan Stanley breaks out prior to the report after months of consolidation. Pay close attention to investment banking and asset management revenues in Q4, which were big contributors to the company’s impressive results last quarter and should continue driving earnings growth following the Eaton Vance acquisition. Finally, Morgan Stanley’s recent doubling of its quarterly dividend and authorized share repurchase program following the Fed’s stress test are a reminder of how best-in-breed financial stocks will continuously reward long-term shareholders.
Finally, we have another one of the world’s biggest diversified banking firms, JPMorgan Chase. With roughly $3.8 trillion in assets and operations in consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management, this is a best-in-breed bank that has developed a truly dominant market position both in the U.S. and abroad. It’s a bank that has strong competitive advantages like industry-leading mobile banking and finance tech, strong operating efficiency, conservative underwriting, and a long history of profitability.
Many of the factors mentioned earlier in the article will benefit JPMorgan Chase, including potentially higher interest rates and an increasingly strong economy. There’s also a lot to like about how JPMorgan Chase trades at a lower multiple than the other banks on our list. Finally, a 2.42% dividend yield and plenty of capital to use for expansion opportunities are additional reasons why this is a great option to consider adding from the financial sector. Just remember that JPMorgan Chase will report its Q4 earnings on January 14th, which could cause some volatility in the share price.