Bank stocks continue to be under pressure, with the shares of many lenders now at a 52-week low. The Standards and Practices (S&P) Banks Index is currently down 22% versus a year-to-date gain of 10% in the benchmark S&P 500 index. The continued pullback comes despite all the major American lenders posting strong third-quarter earnings that by-and-large beat Wall Street forecasts. The concerns weighing on bank stocks seem to have more to do with the impacts of high interest rates, a continued dearth of deals on Wall Street, geopolitical instability, and fears of an economic recession.
Though the continued slump in bank stocks is disappointing, it presents an opportunity for investors to buy these quality stocks at distressed prices. It’s worth noting that hedge funds around the world bought bank stocks to start the year’s fourth quarter, allocating capital on expectations that the financial services sector will rebound in the near-term. Here are financial steals: three bank stocks with outstanding value.
JPMorgan Chase (JPM)
If there’s one bank stock to own, it’s JPMorgan Chase (NYSE: JPM). The largest bank in the world with assets under management of $3 trillion, JPMorgan Chase is seen as a bellwether for the entire United States financial industry. In late September, JPMorgan Chase raised its quarterly dividend to stockholders by 5% to $1.05 per share, giving it a yield of 3.02%. The dividend increase comes after the bank successfully completed the U.S. Federal Reserve’s stress test process, ensuring that it is well capitalized and able to withstand any financial pressures that arise.
More recently, JPMorgan Chase issued third-quarter financial results that handily beat Wall Street forecasts. The lender announced earnings per share (EPS) of $4.33, which was greater than the $3.95 consensus estimate among analysts who cover the bank. Revenue totaled $40.69 billion, which was also above the $39.63 billion expected among analysts. Executives credited the strong Q3 results to greater levels of interest income and lower credit costs than expected. JPMorgan’s latest financial results were helped by its acquisition earlier this year of distressed regional lender First Republic Bank. Profit at JPMorgan rose 35% in Q3 but would have been up only 24% had First Republic not been included.
JPM stock has increased only 3% this year. The bank’s valuation is rock bottom right now, with shares trading at eight times forward earnings.
Morgan Stanley (MS)
Wall Street investment bank Morgan Stanley (NYSE:MS) has a new CEO. Ted Pick, a veteran insider at the bank, has been chosen to succeed retiring CEO James Gorman who will step down on Jan. 1, 2024. Pick climbed the ranks to lead the bank’s Wall Street operations. He currently runs Morgan Stanley’s institutional securities group, which includes investment banking and trading activities, and has been co-president of Morgan Stanley for the past two years. Pick, who is a Harvard MBA, joined Morgan Stanley in 1990 and has been with the firm his entire career.
One of Pick’s top priorities will surely be to get MS stock moving in the right direction again. Down 17% on the year, Morgan Stanley’s share price is currently trading at at 52-week low. The stock is at the same level it was at nearly three years ago. The succession drama surrounding the replacement of Gorman, who led Morgan Stanley since 2010, was part of the problem. So too has been the turmoil in the entire banking sector. The poor stock performance has come despite Morgan Stanley consistently posting better-than-expected results. The lender has positioned itself as a wealth management leader.
MS stock looks like good value right now, trading at 12 times future earnings and offering a dividend that pays 85 cents a share per quarter for a yield of nearly 5%.
Bank of America (BAC)
Bank of America (NYSE:BAC) is another lender that continues to fire on all cylinders. Recently, the bank reported a 10% year-over-year increase in its third-quarter profit, driven by stronger-than-expected interest income. The second largest bank in the U.S. after JPMorgan Chase, Bank of America announced a profit of $7.8 billion, or 90 cents per share, for Q3, up 10% from a year ago and ahead of Wall Street forecasts that had called for EPS of 82 cents.
The bank’s revenue for the three months ended Sept. 30 rose 3% to $25.32 billion, beating analyst expectations for $25.14 billion in sales. Bank of America attributed the strong performance to elevated interest rates, which are currently at a 22-year high, as well as continued growth in its loan book. The bank also continues to benefit from its large retail banking operations, which have helped to power results as consumers continue spending. BAC stock too has lagged the market this year, falling 21% since January. The shares are currently trading at seven times future earnings and offer a quarterly dividend payment of 24 cents a share for a yield of 3.64%.
On the date of publication, Joel Baglole held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
