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Dec. 15, 2016, 8:50 a.m. EST

These are the bank stocks to buy — and sell — after this Fed-fueled run

How to judge J.P. Morgan, Bank of America, Citigroup, Wells Fargo and more

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By Jeff Reeves, MarketWatch

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Bank of America — Hold

A lot of the factors lifting J.P. Morgan’s stock price are similar at Bank of America Corp. /zigman2/quotes/200894270/composite BAC -2.27% . However, the difference is all in sentiment, price history and the charts. In a nutshell, Bank of America had faced resistance around $19 or so, dating all the way back to late 2009. But after a big breakout in the past week or so, the stock has finally reached a new plateau. That’s great to see, and the stock likely will stay there … but it also seems realistic that this stock could retest those levels in the coming months.

While I would be a big buyer of Bank of America around $20, I would be reluctant to add to your position here. More loans at better margins will help in 2017, so I’m not bearish, but I think the stock price is a little ahead of itself.

Citigroup — Hold

Citigroup Inc. /zigman2/quotes/207741460/composite C -1.65% , like Bank of America, is kind of a mixed bag. It certainly has the wind at its back, but it doesn’t quite have the quality of J.P. Morgan. And while it hasn’t run afoul of consumers and regulators the same way as Wells Fargo, that doesn’t necessarily make it a slam-dunk. As an Oppenheimer analyst recently said, it’s safe to “let the bet ride” if you’re holding bank stocks like Citi right now. However, it’s undeniable that a lot of rosy conditions like better loan margins and lower credit costs have already been baked into the cake.

I wouldn’t sell, but there are other bank stocks I’d rather add too … including the regionals discussed below.

Regional banks

Regions Financial — Buy

Broadly speaking, I like regionals as a group over the megabanks because the promise of “reflation” in 2017 assuredly only applies to the U.S. and not to overseas markets. That makes smaller, regional banks a more focused play on this trend — and Regions Financial Corp. /zigman2/quotes/202396577/composite RF -3.23%  is one of my favorite regional banks to buy now.

It trades for roughly book value, and while its dividend is pretty meager at 1.8%, it has aggressively been increasing distributions lately; payouts went from paying 3 cents quarterly at the beginning of 2014 to 6.5 cents for its most recent dividend, yet RF is still only paying out about a third of total earnings and has more room for increases in 2017. Growing dividends coupled with projections of nearly double-digit EPS growth in 2017 bode very well for this regional bank.

Citizens Financial Group – Buy

Citizens Financial Group Inc. /zigman2/quotes/205410375/composite CFG -3.58% is another way to tap into the localized recovery investors are expecting in the next year, and it’s one of the most affordable options out there. The stockl trades at a modest discount to book value and about 16 times forward earnings estimates.

The icing on the cake is that Citizens serves a fairly well-to-do region including New York, New Jersey and Massachusetts — areas with strong housing and local job markets, and thus very likely to lead any cyclical recovery we see in the new year.

People’s Utah Bancorp – Buy

If you want a spicier way to play this trend, consider the tiny People’s Utah Bancorp, a roughly $450 million bank with a mere 20 retail branches in Utah. While a bit more volatile, to be sure, the bank’s focused nature is very attractive given Utah’s amazingly low 3.2% unemployment rate as of October.

While states like North Dakota enjoyed a brief period of growth thanks to fracking but challenges in the age of cheap oil, Utah has a much more balanced economy and isn’t as prone to the boom-and-bust cycle. Utah’s population growth and economic growth are both in the top 10 among U.S. states for 2015, its economy has continued to thrive in 2016 and it should continue to do well in the new year — bringing institutions like People’s Utah Bancorp with it.

/zigman2/quotes/200894270/composite
US : U.S.: NYSE
$ 43.87
-1.02 -2.27%
Volume: 74.61M
Dec. 3, 2021 4:00p
P/E Ratio
13.12
Dividend Yield
1.91%
Market Cap
$367.38 billion
Rev. per Employee
$445,624
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/zigman2/quotes/207741460/composite
US : U.S.: NYSE
$ 62.76
-1.05 -1.65%
Volume: 25.46M
Dec. 3, 2021 4:02p
P/E Ratio
5.87
Dividend Yield
3.25%
Market Cap
$126.62 billion
Rev. per Employee
$423,538
loading...
/zigman2/quotes/202396577/composite
US : U.S.: NYSE
$ 21.90
-0.73 -3.23%
Volume: 10.42M
Dec. 3, 2021 4:00p
P/E Ratio
8.21
Dividend Yield
3.11%
Market Cap
$21.57 billion
Rev. per Employee
$327,064
loading...
/zigman2/quotes/205410375/composite
US : U.S.: NYSE
$ 46.35
-1.72 -3.58%
Volume: 5.03M
Dec. 3, 2021 4:00p
P/E Ratio
9.30
Dividend Yield
3.37%
Market Cap
$20.49 billion
Rev. per Employee
$411,567
loading...

Jeff Reeves is the editor of InvestorPlace.com. Follow him on Twitter @JeffReevesIP.

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