These 14 bank stocks are in the best position to benefit from rising interest rates

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What would you say if you were told about a company whose stock was trading for much less than the S&P 500 Index with expected earnings per share? Also, by 2023, the EPS is expected to grow nearly three times faster than the benchmark index.

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That would be Huntington Bankshares Inc. hbaan,
Which is near the top of the bank stock screen.

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Some banks are better positioned for rising interest rates than others. These banks are considered “asset sensitive” because their loans are revaluing more quickly than their deposits.

S & P 500. compare to

S&P 500 Index SPX

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Weighted total for the next 12 months among analysts survey by Faktset consensus is that earnings-per-share trade on the basis of estimates, 20.6 forward price-to-earnings ratio.

It is high, but it has fallen. Here is a chart that shows the forward P/E of the S&P 500 as well as the movement of the Invesco KBW Bank ETF KBWB.

And Invesco Kebeedblu Regional Banking ETF Kebeedbluar

,

factset

KBWB KBW Nasdaq Bank Index tracks BKX,
Joe Goldman Sachs Group Inc. GS. The investments made banks from 24 of the largest US banks, except

and Morgan Stanley MS,

KBWR KBW Nasdaq Regional Banking Index XX:KRX . The track,
Which holds 50 stocks of regional US banks, which are not included in the BKX.

As you can see on the chart, the two groups of banks trade lower than the S&P 500 Index on a forward P/E basis. They usually do. And while all three groups are trading above their 10-year average P/E, the effect is less pronounced for banks:

anchor

The current forward P / E

10 Year Average Forward P/E

Current Assessment for 10 Year Average

S&P 500. current valuation of

The S & P 500 average rating of 10 years

Invesco KBW Bank ETF

kbwb

13.53

11.89

114%

66%

70%

Invesco KBW Regional Banking ETF

Kebeedbluar

14.89

14.28

104%

72%

85%

S&P 500 Index

spx

20.60

16.88

122%

Source: Faktset

The large banks as a group trade at about 70% of the forward P/E valuation of the S&P 500. Even though KBWB has given a return of 38% in the past one year, it is still trading slightly lower than the S&P 500 on this basis.

Can not be said for the smaller regional banks, Kebeedbluar trading at 85% of S & P 500’s forward P / E valuation – above average 72% of its 10 years.

In general, the best way to play the sector trend for ETF investors. Again, some banks are expected to grow their earnings faster than others as interest rates rise.

During Koronovayrs epidemic after supporting the efforts of the federal government to promote economic development, so we can become a long cycle of rising interest rates, the Federal Reserve has changed its policy to fight inflation.

The Fed will end its extraordinary bond purchases in March, which will put further pressure on long-term interest rates. The central bank is also expected to increase in short-term rates several times this year.

A rising interest rate index means that banks will be able to increase the rates they charge on a revolving credit line. Commercial loans usually have relatively short terms and are also renewable – they will revalue at higher rates, increasing the banks’ profits. Meanwhile, banks as a group are full of cash, meaning they will have relatively little pressure to raise the rates they pay for deposits.

screening of banks

Starting with a group of 76 banks — 24 in the KBW Nasdaq Bank Index, 50 in the KBW Nasdaq Regional Banking Index, plus Goldman Sachs and Morgan Stanley — we looked at consensus projections for earnings per share from 2021 to 2023 to calculate . Compound annual growth for two years rate (CAGR).

It is the tradition of stock analysts working for brokerage firms to set their ratings and price targets based on 12-month projections. But in a note to clients on January 11, Christopher Marinack, director of research at Jenny Montgomery Scott, wrote that “banks are expected to benefit from the effects of rising interest rates in 2023 compared to 2022 due to the timing of the Federal Reserve policy change.” more likely. and the actual reset and extra cash and deployment of liquidity of banks loan portfolio. “

So it’s a two-year story, at least, while Wall Street’s ratings and price targets, and financial-media coverage, are generally set for a much shorter period.

Of the 76 stocks on screen, these 14 are expected to achieve 10% (rounding up) EPS CAGR or higher from 2021 to 2023:

Bank

anchor

City

Forward P / E

Two Years Estimated EPS CAGR

East. EPS – 2021

East. EPS – 2022

East. EPS – 2023

Tal Bank

CAD

Tupelo, Mohd.

20.5

35.7%

$1.69

$2.56

$3.12

Huntington Bankshares Incorporated

hubbank

Columbus, Ohio

13.0

25.9%

$0.96

$1.38

$1.52

Signature Bank

Sbianwai

New York

21.2

23.9%

$14.67

$ 17.60

$22.53

Eastern Bankshare, Inc.

EBC

Boston

20.8

23.1%

$0.96

$1.12

$1.45

State Street Corporation

STT

Boston

12.7

18.2%

$7.32

$8.51

$10.23

Bank of New York Mellon Corporation

bk

New York

14.4

16.8%

$4.16

$4.64

$5.67

Western Alliance Bancorp

wall

marvel

12.3

14.2%

$8.66

$9.76

$11.28

Northern Trust Corporation

NTRS

Chicago

17.6

13.6%

$7.08

$7.66

$9.13

New York Community Bancorp, Inc.

NYCB

Hicksville, NY

10.9

13.5%

$1.21

$1.25

$1.56

first republic bank

FRC

San Francisco

25.6

11.9%

$7.58

$8.25

$9.48

webster financial corporation

WBS

Waterbury, Conn.

13.5

11.7%

$4.58

$5.04

$5.71

Valley National Bancorp

VLY

New York

12.5

10.9%

$1.15

$1.21

$1.41

first bancorp

fbp

San Juan Puerto Rico

11.8

10.3%

$1.30

$1.39

$1.58

Truist Financial Corporation

TFC

Charlotte, NC

14.7

9.7%

$4.55

$4.63

$5.47

Source: Faktset

You can click on the ticker for more information about each company.

Then read Tommy Kilgore’s detailed guide to the wealth of information available for free on the Businesshala quote page.

Compared to the banks on the list, the S&P 500 is expected to have an EPS CAGR of 9.4% from 2021 to 2023, according to the weighted overall consensus estimates compiled by FactSet.

To be sure, a bank may have made the list because analysts believe its loan and deposit pricing mix is ​​set up to take particular advantage of rising interest rates. But a fast-growing one would have made the list, too.

Here’s the list again, along with a summary of dividend yields and opinion among analysts surveyed by FactSet:

Bank

anchor

dividend yield

Share “Buy” Rating

Closing Price – Jan 10

Shortcoming. price target

Implicit 12-Month Upward Potential

Tal Bank

CAD

2.38%

72.73%

33.61

$36.50

8%

Huntington Bankshares Incorporated

hubbank

3.64%

42.11%

$17.03

18.03

6%

signature bank

SBNY

0.63%

94.44%

$353.24

$388.00 …

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