Analysts think these undervalued stocks will benefit from a recovery.
Bank stocks have been on a tear since early November. Investors and analysts are bullish on the potential impact of more global economic stimulus, a macroeconomic recovery and the prospect of rising interest rates, which are good news for bank net interest margins. Even after a strong start to 2021, the financial sector is still one of the most undervalued sectors in the market. Many bank stocks are trading at less than 15 times forward earnings estimates despite improving earnings growth outlooks. Here are eight of the best bank stocks to buy today, according to CFRA Research analysts.
HSBC (ticker: HSBC)
HSBC is one of the world's largest financial institutions with more than 39 million customers around the world. Analyst Firdaus Ibrahim says HSBC will likely exceed Wall Street's consensus estimate for a 3.8% return on tangible equity in 2021. Ibrahim says analysts don't seem to fully appreciate the near-term impact HSBC's shift away from interest-rate-sensitive business lines to more fee-generating businesses will have on its bottom line. Also, further operating cost cuts should boost HSBC's margins. HSBC trades at just 0.58 times book value. CFRA has a "strong-buy" rating and a $31 price target for HSBC stock.
SVB Financial Group (SIVB)
SVB Financial Group is a commercial bank that specializes in technology, life sciences, premium wineries and private equity. Analyst Pauline Bell says she is particularly bullish on SIVB's market share gains, especially among large, high-quality customers. Bell says SIVB's net interest margins should bottom out at around 2.25% in 2021, while a recovering economy should boost the company's core fee income. SIVB is expected to close its $900 million buyout of Boston Private Financial Holdings in mid-2021, and Bell says the deal will help increase SIVB's private banking and wealth management capabilities. CFRA has a "strong-buy" rating and a $530 price target for SIVB stock.
Signature Bank (SBNY)
Signature Bank is a New York commercial bank primarily focused on commercial lending. Bell says Signature's liability-sensitive balance sheet differentiates it from its bank stock peers and makes it uniquely positioned to weather a prolonged environment of low interest rates. Bell says Signature has several bullish catalysts in 2021, including growing core deposits, adding industry verticals and gaining market share. She says Signature has industry-leading efficiency and should maintain its robust earnings power. CFRA projects 23% earnings-per-share growth in 2021. The research firm has a "strong-buy" rating and a $175 price target for SBNY stock.
Royal Bank of Canada (RY)
While American investors focus on a rebound in U.S. bank stocks, Bell says there is opportunity to the north for bank investors as well. Bell says Royal Bank of Canada will likely continue to face earnings pressures in the near term, but its relatively high exposure to personal lending will help mitigate the negative impact. Bell says the bank's real estate secured portfolio exposes the company to credit quality risks, but Royal Bank of Canada has been conservative in its mortgage lending and has an adequate reserve cushion. CFRA has a "buy" rating and an $89 price target for RY stock.
Truist Financial (TFC)
Truist is the sixth-largest U.S. commercial bank. Bell is bullish on Truist's exposure to the fast-growing mid-Atlantic and Southeastern markets. She says the bank's extremely diversified business mix also limits investing risk. Bell says Truist's profitability and organic growth rate could improve after the company completes its targeted $1.6 billion in cost cutting. CFRA projects "robust" insurance and wealth management growth in 2021. Bell also says Truist should generate further momentum in its fee business in 2021 as its investment banking pipeline expands. CFRA has a "buy" rating and a $58 price target for TFC stock.
U.S. Bancorp (USB)
U.S. Bancorp is the fifth-largest U.S. bank by deposits and offers traditional banking, wealth management, insurance and other services. Bell says expense management coupled with progress on its digital-driven strategy should help support U.S. Bancorp's growth and profitability in 2021 and beyond. Expansion into the Southeast and Texas also could provide new opportunities for lending and deposit growth. In the near term, CFRA projects that earnings per share will grow from $3.07 in 2020 to $4.25 in 2022. CFRA has a "buy" rating and a $55 price target for USB stock.
Bank of Nova Scotia (BNS)
Bank of Nova Scotia is the third-largest commercial bank in Canada and another one of Bell's top bank stock picks. Bell says the bank is adapting to low rates by shifting toward a more fee-centric business mix. Its aggressive investments in technology should result in higher digital adoption and improving profit margins in time. Real estate exposure in the Vancouver and Toronto metro areas is a near-term risk, but Bell says Bank of Nova Scotia has less real estate risk than many of its peers. CFRA has a "buy" rating and a $54 price target for BNS stock.
PNC Financial Services Group (PNC)
PNC Financial Services is a leading U.S. bank that focuses on traditional banking, commercial mortgage servicing and asset management services. Bell says fee-based businesses such as commercial banking, treasury management, middle-market merger and acquisition advisory, and asset management should help mitigate net interest margin pressures in a low-rate environment. Bell says PNC's push to expand its business nationally creates a sizable growth opportunity. In addition, PNC's recent $11.6 billion buyout of BBVA should offset earnings lost from the 2020 sale of its 500,000-share stake in BlackRock (BLK). CFRA has a "buy" rating and a $170 price target for PNC stock.
Best bank stocks to buy for 2021
-- HSBC (HSBC)
-- SVB Financial Group (SIVB)
-- Signature Bank (SBNY)
-- Royal Bank of Canada (RY)
-- Truist Financial (TFC)
-- U.S. Bancorp (USB)
-- Bank of Nova Scotia (BNS)
-- PNC Financial Services (PNC)