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These Banking Stocks are Set to Flourish Despite the Banking Crisis
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As Warren Buffett warns, “Only when the tide goes out do you learn who has been swimming naked.” The recent regional banking crisis is a prime example of this phenomenon. Banks such as Silicon Valley Bank, Signature Bank of New York, and Credit Suisse went under or were purchased for pennies on the dollar (with the FDIC mostly taking the hit on unwanted assets).
Though the phrase “banking crisis” carries a negative connotation, certain well-capitalized, opportunistic banks stand to benefit from the situation. Below, we explore why the banking crisis may positively impact certain parts of the industry and will reveal the banking stocks that stand to benefit the most.
Market Consolidation: As weaker banks crumble and go under, more robust, well-capitalized banks will benefit. The banking industry is essentially a zero-sum game; as weak banks lose, stronger banks will win.
JP Morgan ((JPM - Free Report) ) is a significant beneficiary of this trend. While weaker banks are burning to the ground, the Zacks Rank #2 (BUY) company is turning the crisis into an opportunity. The company acquired the failed First Republic Bank in an FDIC-assisted deal in May. Furthermore, with legendary CEO Jamie Dimon at the helm, the bank is often considered one of the most well-managed banks on Wall Street. In fact, despite the mayhem in the financial sector, JPM has grown its return-on-equity (ROE) significantly over the past year. JPM’s ROE of 16.02% compares favorably to the 12.05% of the industry.
Image Source: Zacks Investment Research
Beyond ROE, JPM stands out from a relative strength perspective as well. Year-to-date, JPM has eked out a gain of 1.6% while its peer group is lower by 12%.
Image Source: Zacks Investment Research
First Citizen’s Bank ((FCNCA - Free Report) ) is perhaps the largest winner from the consolidation. The Zacks Rank #1 (Strong Buy) stock acquired failed Silicon Valley Bank for pennies on the dollar (with the help of the FDIC). Since the buyout was announced, shares of FCNCA are higher by more than 100%.
Image Source: Zacks Investment Research
Bargain Basement Valuations: Investors tend to “throw the baby out with the bathwater” when a crisis hits Wall Street. An excellent example occurred after the internet bubble burst when Amazon ((AMZN - Free Report) ) cratered more than 90%. Amazon was the leader in the e-commerce space, but investors were trying to get out of dodge. The same may be occurring with select banking stocks such as Capital One Financial ((COF - Free Report) ).
Despite the recent troubles in the sector, COF’s revenues have grown year-over-year and are expected to continue to grow.
Image Source: Zacks Investment Research
Furthermore, the company’s valuation has shrunk dramatically and is now trading at a third of what the S&P 500 Index is trading at (6.37x versus 19.27X)
Image Source: Zacks Investment Research
The low valuation and strong revenue growth may explain why the most recent 13F disclosures for Warren Buffett and Michael Burry reveal new positions in the company.
UK-based HSBC Holding ((HSBC - Free Report) ) is another banking stock with a strong balance sheet trading at a reasonable valuation.
Innovation:A sleeper beneficiary from the crisis may be Apple ((AAPL - Free Report) ). In 2019, with help from Goldman Sachs ((GS - Free Report) ), the tech giant launched made its way into the financial services sector by launching its “Apple Card,” which is accepted at many stores through various payment systems such as Block’s ((SQ - Free Report) ) Square. Though the company is new in the lending space, it has advantages over traditional banks and credit card companies because of its wide distribution (low acquisition cost). In 2023, Apple launched its “high-yield” savings account which. Because the tech juggernaut has so much cash on hand, it can pay a much higher interest rate than traditional banks.
Takeaway
Though a banking crisis may be daunting to investors, the storm will pass, and strong stocks will benefit dramatically. Industry consolidation, shrinking valuations, and innovation should provide savvy investors ample opportunities over the next few years.
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These Banking Stocks are Set to Flourish Despite the Banking Crisis
As Warren Buffett warns, “Only when the tide goes out do you learn who has been swimming naked.” The recent regional banking crisis is a prime example of this phenomenon. Banks such as Silicon Valley Bank, Signature Bank of New York, and Credit Suisse went under or were purchased for pennies on the dollar (with the FDIC mostly taking the hit on unwanted assets).
Though the phrase “banking crisis” carries a negative connotation, certain well-capitalized, opportunistic banks stand to benefit from the situation. Below, we explore why the banking crisis may positively impact certain parts of the industry and will reveal the banking stocks that stand to benefit the most.
Market Consolidation: As weaker banks crumble and go under, more robust, well-capitalized banks will benefit. The banking industry is essentially a zero-sum game; as weak banks lose, stronger banks will win.
JP Morgan ((JPM - Free Report) ) is a significant beneficiary of this trend. While weaker banks are burning to the ground, the Zacks Rank #2 (BUY) company is turning the crisis into an opportunity. The company acquired the failed First Republic Bank in an FDIC-assisted deal in May. Furthermore, with legendary CEO Jamie Dimon at the helm, the bank is often considered one of the most well-managed banks on Wall Street. In fact, despite the mayhem in the financial sector, JPM has grown its return-on-equity (ROE) significantly over the past year. JPM’s ROE of 16.02% compares favorably to the 12.05% of the industry.
Image Source: Zacks Investment Research
Beyond ROE, JPM stands out from a relative strength perspective as well. Year-to-date, JPM has eked out a gain of 1.6% while its peer group is lower by 12%.
Image Source: Zacks Investment Research
First Citizen’s Bank ((FCNCA - Free Report) ) is perhaps the largest winner from the consolidation. The Zacks Rank #1 (Strong Buy) stock acquired failed Silicon Valley Bank for pennies on the dollar (with the help of the FDIC). Since the buyout was announced, shares of FCNCA are higher by more than 100%.
Image Source: Zacks Investment Research
Bargain Basement Valuations: Investors tend to “throw the baby out with the bathwater” when a crisis hits Wall Street. An excellent example occurred after the internet bubble burst when Amazon ((AMZN - Free Report) ) cratered more than 90%. Amazon was the leader in the e-commerce space, but investors were trying to get out of dodge. The same may be occurring with select banking stocks such as Capital One Financial ((COF - Free Report) ).
Despite the recent troubles in the sector, COF’s revenues have grown year-over-year and are expected to continue to grow.
Image Source: Zacks Investment Research
Furthermore, the company’s valuation has shrunk dramatically and is now trading at a third of what the S&P 500 Index is trading at (6.37x versus 19.27X)
Image Source: Zacks Investment Research
The low valuation and strong revenue growth may explain why the most recent 13F disclosures for Warren Buffett and Michael Burry reveal new positions in the company.
UK-based HSBC Holding ((HSBC - Free Report) ) is another banking stock with a strong balance sheet trading at a reasonable valuation.
Innovation:A sleeper beneficiary from the crisis may be Apple ((AAPL - Free Report) ). In 2019, with help from Goldman Sachs ((GS - Free Report) ), the tech giant launched made its way into the financial services sector by launching its “Apple Card,” which is accepted at many stores through various payment systems such as Block’s ((SQ - Free Report) ) Square. Though the company is new in the lending space, it has advantages over traditional banks and credit card companies because of its wide distribution (low acquisition cost). In 2023, Apple launched its “high-yield” savings account which. Because the tech juggernaut has so much cash on hand, it can pay a much higher interest rate than traditional banks.
Takeaway
Though a banking crisis may be daunting to investors, the storm will pass, and strong stocks will benefit dramatically. Industry consolidation, shrinking valuations, and innovation should provide savvy investors ample opportunities over the next few years.