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3 Bank Stocks to Buy as Sector Regains Momentum in November

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Being the election month, November 2020 witnessed significant volatility. This, along with favorable news regarding coronavirus vaccine developments, kept investors’ sentiments bullish despite a surge in infections across the United States.

Thus, Wall Street ended the month as one of the best Novembers historically. All the three major indexes – the S&P 500, Dow Jones and Nasdaq – ended in green on a month-over-month basis.

Specifically, the S&P 500, which gained 10.8%, had its best November ever. Additionally, both the Dow Jones and Nasdaq were up 11.8% each. The Dow Jones had the best November since 1987, and Nasdaq since 2001 (the heart of the dot-com boom era).

Further, the S&P 500 Financials sector (which had been one of the underperforming sectors till October-end) became among one of the top performers. The sector rallied 16.8% in November, second only to S&P 500 Energy (Sector), which was up more than 26%.

Likewise, SPDR S&P Regional Banking ETF and KBW Nasdaq Bank Index jumped 15.7% and 17.4%, respectively. Additionally, S&P Regional Banks Select Industry Index gained 15.3%.

Upward Momentum in Bank Stocks to Continue

Banks have been among the worst performers since the coronavirus outbreak in March and resultant economic slowdown as the pandemic impeded business activities across the globe. This, along with low interest rates, (the Federal Reserve cut the rates to near-zero in mid-March to support the U.S. economy) has been weighing on the banks’ financials.  

Hence, the encouraging data related to coronavirus vaccine from Pfizer and its German partner BioNTech, along with Moderna and AstraZeneca, were seen as harbingers of restoration of near-normal activities. Also, this goes on to indicate that there is a high chance that other vaccine developers like Johnson & Johnson and Novavax could find favorable results too.

With some of these companies already having applied for emergency use of their COVID-19 vaccine, investors are optimistic that economic recovery will speed up and banks will not be required to build additional pandemic-related reserves. Further, with economic recovery, the chances of banks facing high level of delinquent loans will lessen.

Additionally, demand for loan (which is faltering of late due to less appetite among businesses to grow) should increase. Thus, this will aid banks’ net interest income (primary source of revenues) and net interest margin despite low rate environment.

Moreover, several banks had voluntarily/involuntarily suspended share repurchases and even cut dividends to conserve liquidity despite having strong capital position. Thus, with the economic recovery, banks’ capital deployment actions are expected to return to pre-crisis level. This will, in turn, enhance shareholder value.

Our Picks

Given the optimistic outlook, banks are expected to keep performing well going forward. Therefore, one must keep close eye on fundamentally solid banks and make wise investment decisions to generate attractive returns in the future.

Below we present three bank stocks that have rallied more than 15% in November 2020 and have market capitalization of $1 billion or more. Also, these banks currently sport a Zacks Rank #1 (Strong Buy) and have been witnessing positive estimate revisions over the past month. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Troy, MI, shares of Flagstar Bancorp rallied 19.4% in November. It provides commercial and consumer banking services to individuals and businesses. The company has a market cap of $1.8 billion. Over the past month, the company’s earnings estimates for 2020 have moved marginally upward.

Heartland Financial USA (HTLF - Free Report) , based in Dubuque, IA, provides commercial, small business and consumer banking services. The company’s shares rallied 18.4% last month. It has a market cap of $1.4 billion. Over the past 30 days, the Zacks Consensus Estimate for its current-year earnings has risen 3.5%.

Sterling Bancorp , headquartered in Montebello, NY, offers various banking products and services to commercial, consumer, and municipal clients. Shares of the company rallied 19.5% in November. It has a market cap of $3.1 billion. Over the past 30 days, its current-year earnings estimates have been revised marginally upward.

The chart below shows the price performance of our three picks in November.


 

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