The outlook for bank stocks remains bright given the catalysts of rising interest rates, regulatory reform, and lower corporate taxes. And the prospects may be especially good for bargain hunters looking for financially sound banks that were beaten down during the recent market correction, according to David Long, analyst at Raymond James Financial Inc. (RJF), per Barron's.
Long recommends 7 stocks, which are: SVB Financial Group (SIVB), First Horizon National Corp. (FHN), Texas Capital Bancshares Inc. (TCBI), FB Financial Corp. (FBK), TriState Capital Holdings Inc. (TSC), Howard Bancorp Inc. (HBMD), and Bank of Commerce Holdings (BOCH). Raymond James rates SVB Financial and First Horizon as strong buys, and the others as outperform.
Below are the year-to-date price moves for these stocks through the open on February 23, as well as their declines during the broader market's pullback between the closes on January 26 and February 8. Most of these declines were much sharper than big banks such as JPMorgan Chase (JPM), whose shares fall by 7.3% during the pullback:
- SVB Financial: +5.7% YTD, -7.1%
- First Horizon: -1.5% YTD, -7.5%
- Texas Capital: +3.8% YTD, -9.2%
- FB Financial: -2.5% YTD, -10.2%
- TriState Capital: -0.2% YTD, -11.1%
- Howard Bancorp: -14.5% YTD, -11.3%
- Bank of Commerce: -4.8% YTD, -4.4%
Meanwhile, noted bank stock analyst Dick Bove is very bullish on the banking industry as a whole. He recently offered a detailed analysis of four key reasons why banks should be entering an unprecedented era of growth that he describes as "Nirvana." (For more, see also: 4 Reasons Bank Stocks Will Rise Longterm: Bove.)
Bank stocks are also a prime area for income-oriented investors to explore, given a robust profit outlook and regulatory relief. Specifically, as the banking sector has returned to health, banking regulators are allowing larger returns of capital to shareholders, through dividend increases and share repurchases. (For more, see also: 10 Banks With Soaring Dividend Payouts.)
However, only two of Long's picks are paying dividends. Here are the current forward dividend yields, forward price/earnings ratios, and market cap figures for these stocks, per data from Yahoo Finance:
- SVB Financial: no dividend, 15.20 P/E, $12.92 billion
- First Horizon: 2.45% yield, 11.34 P/E, $6.3 billion
- Texas Capital: no dividend, 13.86 P/E, $4.56 billion
- FB Financial: no dividend, 13.12 P/E, $1.25 billion
- TriState Capital: no dividend, 11.57 P/E, $655 million
- Howard Bancorp: no dividend, 12.21 P/E, $187 million
- Bank of Commerce: 1.09% yield, 12.17 P/E, $179 million
To be sure, Long is hardly bullish on every beaten-down bank stock. Wells Fargo & Co. (WFC), one of the worst performing bank stocks during the pullback, deserved to take a hit given its many problems, according to Long.