World events have dramatically changed the investment landscape in just a few weeks. Markets went from their highest peaks to near-historic lows in a matter of days. For those already seeing anxiety-provoking losses in their portfolios – don’t panic.
Do resist the temptation to sell off quality shares at fire-sale prices. If you have a well-diversified mix of blue chip companies, consider yourself a long-term investor and leave your portfolio to recover as the market eventually regains its strength.
New investors and those with funds available to increase their holdings in these uncertain times have a rare opportunity. At the most basic level, stocks are now “on sale”. Buy at these uncommonly low prices, so that when the market recovers, you are in a strong position to grow your wealth.
But which stocks should invest in? We take a look at the best banks stocks to buy now.
What Do Interest Rate Drops Mean For Bank Stocks?
Financial services institutions have a long history of delivering value to shareholders, and they will play a critical role in bringing stability back to the markets.
In 2019, the banking industry as a whole had an excellent year. The KBW Bank Index, which tracks stock in 24 of the nation’s largest banks, showed returns of approximately 30 percent. More importantly, the Dow Jones US Bank Index gained 32 percent, which was substantially higher than the Dow Jones Industrial Average.
It’s true that these returns won’t continue through 2020 if current conditions remain unchanged. Recent rate drops mean lower margins for lenders – at least in the short-term.
In addition, changes to accounting rules will give the appearance of lower year-over-year earnings in coming quarters. Specifically, the Current Expected Credit Loss (CECL) rule requires lenders to forecast losses and book them when the loan is made, instead of waiting until default actually occurs.
These challenges notwithstanding, when you take a long-term perspective, it is clear that stocks in the financial services industry tend to generate profit. If you haven’t already, now is the time to add one or more of the following companies to your portfolio:
JP Morgan Chase Is #1 By Market Cap
When measured by market capitalization, JP Morgan Chase is number one in the industry. As of December 31, 2019, it held $2.7 trillion in assets and $261.3 billion in stockholder’s equity.
The company has a diverse mix of businesses that offer distinct growth opportunities, including financial services for small businesses and consumers, investment banking, transaction processing, asset management, and commercial banking. Together, this combination creates a synergy that has generated strong results in recent years.
The past two years have been especially profitable for JP Morgan Chase. Total earnings increased by 19 percent in 2019, and the company delivered double-digit earnings per share for eight consecutive quarters.
Though analysts were predicting those figures would drop in the coming year well before current market developments made that prediction a certainty, overall this stock has been rated a buy for those interested in adding banking shares to their portfolios.
Today’s low prices present a unique opportunity for investors to purchase JP Morgan shares without paying the premium rates of just a few weeks ago.
Bank of America
By any measure, Bank of America is a global leader in the financial services industry. It offers a wide range of banking, lending, asset management, investment, and risk management services for all market segments, from consumers to corporations.
In total, Bank of America has more than 66 million consumer and small business clients, and its 4,300 retail financial centers and 16,800 ATMs can be found across the United States and in 35 countries worldwide.
Among other things, Bank of America differentiates itself from its peers through innovative tools and services specifically designed to make money management simple. In fact, the company’s digital banking services have won awards for design and user-friendly interface, and many consider Bank of America’s mobile banking app best-in-class. That’s good news in an industry that is driving the transition to digital.
Bank of America exceeded analyst expectations for four consecutive quarters in 2019, and its stock posted total returns of 39 percent for the year. The January 2020 announcement of fourth quarter 2019 results wasn’t quite as impressive, and stock prices declined slightly as a result.
While current events are likely to exert downward pressure on every notable metric, the historical success of Bank of America’s strategy can’t be ignored.
If management continues its pattern of smart, forward-thinking management, the company is well-positioned for continued growth and profitability long-term.
Wells Fargo Is The Top Bank Brand
Wells Fargo is a massive financial services provider, as evidenced by its prominent place on all sorts of industry lists. As of 2019, it is third in total deposits, the fifth most profitable company in the United States, and the tenth largest public company in the world.
In fact, according to Brand Finance, Wells Fargo is the most valuable banking brand in the United States, and the fifth most valuable banking brand in the world.
Unfortunately, all of these accolades haven’t helped the company much in recent years. Wells Fargo’s troubles began long before the current economic downturn.
In 2016, Wells Fargo was the subject of a fraud investigation, during which it was found that employees opened millions of accounts without consent from customers in an effort to meet sales goals. This resulted in billions of dollars in fines, as well as substantial damage to the company’s reputation.
Over the past five years, Wells Fargo stock underperformed the S&P 500, with total losses of (3.7 percent) for the same period. For the fourth quarter of 2019, earnings came in at $0.60 per share, but there is an important caveat. If legal costs related to the fraud issues are excluded, earnings per share would be $0.93. That figure is still 23 percent lower when compared year over year.
Adding to the problem is a lack of consistent, strong leadership. Management is struggling, as the long-time CEO retired just after the fraud investigation became public.
The CEO who replaced him only lasted a few years, having been unable to get the company back on track. With all of these concerns combined, analysts had already projected poor results for 2020 before the recent economic downturn. That means Wells Fargo may have a more difficult time recovering from market losses.
In short, of the three bank stocks listed, Wells Fargo may be the weakest option. It wasn’t doing well before current market conditions unfolded, and it may take longer than peer institutions to recover.
Best Bank Stocks: The Bottom Line
It’s a tough time to own shares in any company, and the financial services industry is particularly hard-hit. However, the economy as a whole is resilient, and financial institutions tend to play a major role in returning it to health once the crisis has passed.
This is a good time to add bank stocks to your portfolio at low prices, so that you will be positioned to enjoy any increases that come as the market recovers.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.