At present, investors are mostly shying away from the bank stocks given the lower interest rate environment. After raising interest rates four times in 2018, the Federal Reserve reversed its stance and cut rates in July, September and October this year. Though it is widely expected that there will be no further rate cut when the Fed officials meet next week, the three cuts have largely offset the favorable impact of last year’s higher rates.
Additionally, several other macroeconomic matters, including the ongoing U.S.-China trade conflict, Brexit ambiguity and global slowdown fears weigh on investors’ sentiments. These factors have also resulted in a slowdown in capital investments by corporates.
Despite these near-term concerns, strong fundamentals and prospects make several banks a good investing option. But before we check out those banks, let’s dig into the factors are likely favorably impact their performance.
Digitization of Operations: Banks are undertaking several measures to improve operating efficiency. For this, banks are digitally improving product offerings and services. Also, they are taking steps to upgrade technology at ATMs and branches, making these more client friendly. Though these initiatives will result in higher expenses in the near term, these are expected to support financials going forward.
Inorganic Expansion: Backed by less stringent financial regulations and large amount free cash available owing lower corporate tax rates, banks are undertaking expansion via acquisitions. These deals are expected to be accretive to earnings and will lead to cost and revenue synergies. In one of the biggest deals in a decade, BB&T Corp has agreed to acquire SunTrust Banks , leading to the creation of sixth largest bank in the United States.
Additionally, several smaller banks are opting for a similar route to expand their market share amid a tough operating backdrop.
Revenue Diversifying: Banks are foraying in to new avenues to improve revenue mix. With loan demand being moderate, banks are focusing more on generating fee income. This will enable banks to be less dependent on interest rates. Also, they are opening branches in new markets, which will support cross selling opportunities.
Strong Economy: Banks’ financials is directly related to the health of the nation. The U.S. economy continues to show strength. Last week, per the data release by the Commerce Department, the country’s real GDP expanded at an annual rate of 2.1% (second estimate) in third-quarter 2019. In the second quarter, it was 2.0%, while in the first quarter real GDP was 3.1%.
Winning Bank Stocks
The above-mentioned factors are expected to keep supporting the banking sector. But it’s not an easy task to select a handful of banking stocks that are likely to provide steady returns.
So, with the help of the Zacks Stock Screener, we selected bank stocks that carry a Zacks Rank #2 (Buy) or better and have current-year earnings growth expectation of 10% or more. Further, they have market capitalization exceeding $2 billion and have rallied more than 15% year to date.
Here are the four bank stocks that met the above criteria:
Headquartered in Memphis, TN, First Horizon National Corporation (FHN - Free Report) has rallied 22.1% so far this year. With a Zacks Rank of 2, the company’s earnings are expected to grow 14.2% in 2019. It has a market cap of $5 billion.
Shares of Hilltop Holdings Inc. (HTH - Free Report) have surged 38.1% year to date. This Dallas, TX -based bank’s earnings are expected to surge 70.3% in 2019. It sports a Zacks Rank 1 (Strong Buy) and has a market cap of $2.2 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.
First BanCorp. (FBP - Free Report) , based in Santurce, PR, carries a Zacks Rank #2. Its shares have risen 22.1% year to date. The company’s earnings are expected to grow 22% in 2019. It has a market cap of $2.3 billion.
Pinnacle Financial Partners, Inc. (PNFP - Free Report) has a Zacks Rank #2 and its 2019 earnings are projected to increase 12.9%. This Nashville, TN-based company has market cap of $4.7 billion and its shares have rallied 33.2% so far this year.
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