The 10 best bank stocks to buy for 2019.
Heading into the New Year, the economy seems to be doing well, with GDP growing by 3 percent or so, relatively low inflation, and 2017’s tax cuts providing heavy fiscal stimulus to the economy and corporate America. But in the fourth quarter of 2018, markets went south, as concerns about overvaluation, a slowing China, a flattening yield curve, the trade war and rising interest rates struck fear into investors. That said, the underlying fundamentals still look solid, and rising rates should actually benefit financials on the whole. Here are 10 of the best bank stocks to buy for 2019.
Citizens Financial Group (ticker: CFG)
The $15 billion Citizens Financial Group is a holding company that owns Citizens Bank, a regional bank conducting both consumer and commercial banking services for clients. After getting walloped in 2018, CFG’s extremely cheap valuation makes it one of the best bank stocks to buy for 2019, and is perhaps best suited for investors willing to go against the tide. Although the bank has defended its actions, concerns that Citizens is named in special counsel Robert Mueller’s indictment of Paul Manafort helped instigate the 24 percent sell-off. Now trading at 10 times earnings, a price-earnings-growth ratio of just 0.6, and boasting a 3.4 percent dividend, CFG is an outright steal.
Morgan Stanley (MS)
One of the major Wall Street banks, Morgan Stanley had a rough 2018 as the sell-off in financials didn’t do any favors for MS stock. Thankfully for opportunistic investors, shares are selling at extremely attractive multiples: a P/E of 8.6, PEG of 0.45, and a price-book ratio less than 1. Morgan Stanley, which helps companies go public, underwrites debt, provides mergers and acquisitions advice, offers wealth management — to mention just a few services — is doing well. In the third quarter, revenue rose 7.3 percent, earnings per share jumped 26 percent, and its efficiency ratio improved to 71 from 73 percent a year prior.
CME Group (CME)
One of the few picks making the list of best bank stocks to buy for the second consecutive year is CME Group, the options and futures exchange. Though technically not a bank, CME is certainly a financial stock, and it’s coming off a great 2018 in which shares rose nearly 30 percent. One reason CME Group is fitting entering 2019 is its lack of correlation with traditional bank stocks: In times of higher volatility and uncertainty over interest rates, CME benefits as investors frantically trade. The owner of the Chicago Mercantile Exchange, New York Mercantile Exchange and Commodity Exchange is expected to grow revenue by 24 percent in 2019.
JPMorgan Chase & Co. (JPM)
The last remaining big bank CEO that navigated his firm through the financial crisis and remains at the helm calling the shots is Jamie Dimon, whose prestige has expanded enormously after leading his firm through the roughest waters in modern financial history. JPMorgan is the largest bank in the U.S. and is currently thriving, raising its dividend payout by 40 percent in 2018. Its 3 percent yield and $2.5 trillion in assets make it less volatile than your average bank stock, and with Dimon serving through 2023 and a new, $4 billion investment from Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) in the third quarter, JPM is a blue-chip portfolio anchor.
Goldman Sachs Group (GS)
Investors have the rare opportunity to take advantage of a market overreaction that makes Goldman Sachs one of the best bank stocks to buy for 2019. With shares off a remarkable 30 percent for 2018 midway through the month of December, nothing much has changed with the business: Goldman remains the gold standard for Wall Street banking services like investment banking, market-making, research and brokerage offerings, to name a few. The catalyst behind Goldman’s decline, however, is the visible 1MDB scandal, which made GS $600 million — money Malaysia now wants refunded. For a $67 billion behemoth trading at 0.9 times book and 7 times earnings, Goldman’s bargain-bin price seems unjustified.
PayPal Holdings (PYPL)
More a financial than a bank, PayPal gives investors a pure-play opportunity on something sure to blossom in the coming years and decades: digital payments. One of the few large-cap growth stocks on this list, PayPal’s both established and exciting, with its mobile payments platform Venmo growing total payment volume by 78 percent in the third quarter. Active account growth across PayPal accelerated in the quarter, and with margins expanding, revenue growth of 14 percent drove 26 percent EPS growth. Recent partnerships with American Express Co. (AXP) and Walmart (WMT) should both drive adoption and boost PYPL’s competitive advantages.
Perhaps the ultimate financial powerhouse, Berkshire owns meaningful percentages of many of the best bank stocks to buy for 2019. Berkshire Hathaway owns 4.9 percent of Goldman Sachs, 7.7 percent of U.S. Bancorp (USB), and an incredible 17.6 percent of American Express. Every time these portfolio companies buy back stock, Berkshire’s ownership stake grows. A major beneficiary of tax reform — Berkshire’s income tax rates fell from 35.3 percent in 2017 to 20.5 percent in 2018 — Warren Buffett’s sprawling holding company is such a cash cow that it’s hard to see it coming to an end until mankind itself does.
U.S. Bancorp (USB)
As noted, Buffett, widely considered the best investor in the world, owns a big chunk of U.S. Bancorp through his holding company Berkshire Hathaway. In 2018, Berkshire actually backed up the truck, increasing its ownership of USB by more 20 percent in the first three quarters alone. The conservatively run $80 billion company offers both commercial and retail banking services, boasting over 3,000 offices primarily located on the West Coast and in the Midwest. Having grown its dividend for seven consecutive years, USB now yields a solid 3 percent, which is currently more than the 10-year Treasury yield. U.S. Bancorp has been around since 1863.
Interactive Brokers (IBKR)
While again taking some liberties with the term “bank stocks” for the sake of quality, Interactive Brokers is one of the more compelling and under-respected opportunities in the financial sector. An online broker heavily focused on access to international markets and built around automation and extremely low transaction costs, IBKR clients include hedge funds, mutual funds, financial advisors and individual investors. IBKR accounts grew 25 percent year-over-year to 592,000 in November, and thankfully for investors, 65 percent of revenue is now generated by interest income — money earned on customer deposits, margin lending, etc. — rather than commissions, an area under intense competitive pressure. A PEG ratio of 0.9 underscores IBKR’s value.
American Express Co. (AXP)
Last but not least, credit card giant American Express is another one of the best financial stocks to buy for 2019. With Berkshire as a 17 percent owner, you’re in good company owning one of the few major credit card companies around — and the one that’s differentiated from its peers through its high-fee, high-reward cards. A 1.5 percent dividend, which has been growing for six years, is one reward that patient shareholders will appreciate. In the most recent quarter, revenue grew by 9 percent and EPS jumped 29 percent as AXP continued to aggressively buy back stock.
The best bank stocks to buy for 2019.
To review, these are the 10 best bank stocks to buy for 2019:
— Citizens Financial Group (CFG)
— Morgan Stanley (MS)
— CME Group (CME)
— JPMorgan Chase & Co (JPM)
— The Goldman Sachs Group (GS)
— PayPal Holdings (PYPL)
— U.S. Bancorp (USB)
— Interactive Brokers (IBKR)
— American Express Co. (AXP)
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