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5 Bank Stocks to Buy Despite Low Rates & Economic Slowdown

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The coronavirus crisis has wreaked havoc across global markets and significantly disrupted business activities. Though stay-at-home orders have been lifted in most countries, and companies have resumed operations, the second wave of coronavirus in the United States indicates that any recovery will be long drawn.

Like all industries and sectors, the U.S. banking industry has also not been left untouched by the unfavorable impact of the pandemic. Since March, when the health crisis started to take a toll on the economy, the SPDR S&P Regional Banking ETF have gained 2.4%, while the KBW Nasdaq Bank Index has declined marginally. This pales in comparison to the S&P 500, which rallied 19.8% during the same period.

Demand for loans faltered as businesses faced closures and bankruptcies. The low rate environment didn’t help matters either. Therefore, growth in banks’ net interest income (NII) and net interest margins (NIM) was adversely impacted. Nonetheless, amid these trying times, non-interest income like trading income, investment banking fees and mortgage banking income provided support to the banks’ top lines.

Further, banks built huge provisions due to the economic slowdown during the first two quarters of 2020. While provisions cushion banks' financials against any future losses, a spike in the same hurt their profitability. Nevertheless, some green shoots are being witnessed, of late. As per a S&P Global report, provisions slumped more than 80% sequentially in third-quarter 2020. As the economy recovers gradually and businesses open up, the level of provisioning is likely to decline further in the days to come.

Apart from this, as more and more people stay indoors to avoid exposure to the virus, banking activities are being conducted within the confines of homes. Hence, the financial firms are undertaking initiatives toward significant technological shift and enhancing their digital footprint. A number of banks are even consolidating their branch networks and offering almost all banking services digitally. These efforts are anticipated to save costs and boost the companies’ operational efficiency.

Furthermore, encouraging data related to the coronavirus vaccine is acting as a key tailwind for the past month. Pfizer and its German partner BioNTech, along with Moderna and AstraZeneca, are being seen as the front-runners to develop an effective vaccine. With some of these companies already having applied for emergency use of their vaccines, investors are optimistic that the economic recovery will gradually gather steam and the overall lending scenario will likely improve. This, in turn, will support banks’ NII and NIM to some extent.

Subsequently, banks’ capital-deployment activities will resume, which have been muted over the past several months in order to conserve liquidity, and aid in boosting shareholder value.

5 Banks Worth Betting On

Thus, as the banking industry gradually comes out of woods, this is the right time to add a few bank stocks in your investment portfolio. However, it is not easy to find fundamentally strong banks from the vast universe of stocks.

Hence, with the help of the Zacks Stock Screener, we have picked five bank stocks that investors can consider despite the challenging operating backdrop. All these stocks have a market capitalization of more than $1 billion, and carry a Zacks Rank #1 (Strong Buy) or #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, these banks have expected two-year earnings growth rate of 5% or more. Additionally, these stocks have gained more than 15% over the past three months.

Headquartered in Abilene, TX, First Financial Bankshares, Inc. (FFIN - Free Report) offers commercial banking products and services. The bank has a market cap of $5 billion. Shares of the company have rallied 20.1% in the past three months. Also, the bank has an expected two-year earnings growth rate of 15.4%. The stock currently flaunts a Zacks Rank #1.

Flagstar Bancorp, Inc. (FBC - Free Report) , based inTroy, MI, has gained 19% over the past three months. As a savings and loan company, it offers commercial and consumer banking services. The company has a market cap of $1.9 billion. Its earnings are projected to be up 65.7% over the next two years. Also, the stock sports a Zacks Rank of 1, at present.

Investors Bancorp, Inc. (ISBC - Free Report) , headquartered in Short Hills, NJ, offers various banking products and services. The company’s shares have appreciated 34.7% in three months’ time. It has a market cap of $2.6 billion. Notably, the company’s earnings are projected to increase 33.3% over the next two years. The stock currently carries a Zacks Rank of 2.

Shares of Meta Financial Group, Inc. (CASH - Free Report) have soared 94% over the past three months. It provides various banking products and services, and also issues prepaid cards and consumer credit products. Based in Sioux Falls, SD, the bank has a market cap of $1.2 billion. In addition, the company’s earnings are anticipated to be up 69.7% over the next two years. Presently, the stock flaunts a Zacks Rank of 1.

Headquartered in Dallas, TX, shares of Triumph Bancorp, Inc. (TBK - Free Report) have surged 65.2% in three months’ time. It provides banking and commercial finance products and services to retail customers and small-to-mid-sized businesses. The company has a market cap of $1.2 billion. Moreover, the company’s earnings will likely rise 15.2% over the next two years. Currently, the stock sports a Zacks Rank of 1.

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