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4 Bank Stocks You Should Dump Even If Fed Raises Rates
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The expectations of a rate hike in June heightened after the release of the minutes from the April FOMC meeting. Further, Federal Reserve Chair Janet Yellen looked aggressive on rate hike in her most recent speech at Harvard University. She added, “Growth looks to be picking up from the various data we monitor.”
Essentially, the final decision by the Fed in its meeting on Jun 14-15 will depend largely on overall economic growth, labor markets scenario and inflation target of 2%.
After a prolonged low rate environment, the impact of rising rates is typically beneficial for most banks. Notably, after the December rate hike, most asset sensitive banks experienced a decent increase in net interest income and net interest margin in the first quarter 2016.
While the possibility of another rate hike gives the banks hope of a boost in bottom line, the overall challenging environment leaves little room for offsetting the pressure. Profitability of banks continues to be limited by several issues including heightened regulations, stiff competition and increasing costs in several areas – ranging from huge legal bills for settling legacy issues to investments in updated technology and cyber-security platform.
Other issues include volatility in oil prices that has affected the asset quality of some banks, given their exposure in the energy sector. High provisioning by the banks to cover the soured loans of the energy companies continue to dent the financials over the past several quarters.
Additionally, factors including the negative interest rate policies in Eurozone and Japan, China’s slowdown and weakness in emerging markets continue to contribute to global growth concerns. These are definitely a threat to a number of banks that have substantial international exposure.
As such, banks have been undertaking defensive measures including aggressive restructuring and cost containment by scaling back non-core operations, reducing footprint, reduction in headcount and looking for ways to increase non-interest revenues.
Nevertheless, such measures are not strong enough to generate a stable growth pattern. Also, another possible rate hike would not be sufficient to defy the larger challenges in the industry.
Amid such backdrop, we suggest investors to dump certain stocks that do not look attractive even after the Fed raises rate in the coming months.
While the task of selecting such stocks may seem quite difficult, our Zacks Stock Screener makes it easier.
Stocks to Avoid
We have shortlisted four stocks in the banking industry with a market capitalization of at least $2 billion, carrying a Zacks Rank #4 (Sell) or #5 (Strong Sell). These stocks have witnessed downward estimate revisions over the last 60 days.
Umpqua Holdings Corp. : The Oregon-based bank carries a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company revised more than 3% downward to $1.22 per share for 2016.
First Financial Bankshares Inc. (FFIN - Free Report) : Based in Texas, the company currently has a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company declined 1.2% to $1.63 per share for 2016.
Associated Banc-Corp (ASB - Free Report) : The Wisconsin-based company with a Zacks Rank #4 witnessed nearly 5% decline in the Zacks Consensus Estimate over the last 60 days to $1.20 per share for 2016.
F.N.B. Corp. (FNB - Free Report) : Based in Pennsylvania, the company currently has a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company declined more than 2% to 92 cents per share for 2016.
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4 Bank Stocks You Should Dump Even If Fed Raises Rates
The expectations of a rate hike in June heightened after the release of the minutes from the April FOMC meeting. Further, Federal Reserve Chair Janet Yellen looked aggressive on rate hike in her most recent speech at Harvard University. She added, “Growth looks to be picking up from the various data we monitor.”
Essentially, the final decision by the Fed in its meeting on Jun 14-15 will depend largely on overall economic growth, labor markets scenario and inflation target of 2%.
After a prolonged low rate environment, the impact of rising rates is typically beneficial for most banks. Notably, after the December rate hike, most asset sensitive banks experienced a decent increase in net interest income and net interest margin in the first quarter 2016.
While the possibility of another rate hike gives the banks hope of a boost in bottom line, the overall challenging environment leaves little room for offsetting the pressure. Profitability of banks continues to be limited by several issues including heightened regulations, stiff competition and increasing costs in several areas – ranging from huge legal bills for settling legacy issues to investments in updated technology and cyber-security platform.
Other issues include volatility in oil prices that has affected the asset quality of some banks, given their exposure in the energy sector. High provisioning by the banks to cover the soured loans of the energy companies continue to dent the financials over the past several quarters.
Additionally, factors including the negative interest rate policies in Eurozone and Japan, China’s slowdown and weakness in emerging markets continue to contribute to global growth concerns. These are definitely a threat to a number of banks that have substantial international exposure.
As such, banks have been undertaking defensive measures including aggressive restructuring and cost containment by scaling back non-core operations, reducing footprint, reduction in headcount and looking for ways to increase non-interest revenues.
Nevertheless, such measures are not strong enough to generate a stable growth pattern. Also, another possible rate hike would not be sufficient to defy the larger challenges in the industry.
Amid such backdrop, we suggest investors to dump certain stocks that do not look attractive even after the Fed raises rate in the coming months.
While the task of selecting such stocks may seem quite difficult, our Zacks Stock Screener makes it easier.
Stocks to Avoid
We have shortlisted four stocks in the banking industry with a market capitalization of at least $2 billion, carrying a Zacks Rank #4 (Sell) or #5 (Strong Sell). These stocks have witnessed downward estimate revisions over the last 60 days.
Umpqua Holdings Corp. : The Oregon-based bank carries a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company revised more than 3% downward to $1.22 per share for 2016.
First Financial Bankshares Inc. (FFIN - Free Report) : Based in Texas, the company currently has a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company declined 1.2% to $1.63 per share for 2016.
Associated Banc-Corp (ASB - Free Report) : The Wisconsin-based company with a Zacks Rank #4 witnessed nearly 5% decline in the Zacks Consensus Estimate over the last 60 days to $1.20 per share for 2016.
F.N.B. Corp. (FNB - Free Report) : Based in Pennsylvania, the company currently has a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company declined more than 2% to 92 cents per share for 2016.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>