Analysts see big upside for these undervalued bank stocks.
After a big year in 2021, analysts say bank stocks could continue to outperform in 2022. The combination of a recovering U.S. economy and the potential for Federal Reserve interest rate hikes sooner than expected could set up bank stocks for outsize earnings growth in the next couple of years. Bank stocks have benefited from reserve releases and dividend hikes in recent quarters. Even after big 2021 gains, analysts say many bank stocks remain undervalued in an extremely pricey stock market. Here are 10 of the best bank stocks to buy in 2022, according to Wall Street analysts.
Citigroup Inc. (ticker: C)
Shares of U.S. megabank Citigroup significantly underperformed its bank stock peers in 2021. However, Bank of America analyst Ebrahim Poonawala says Citigroup is simply too undervalued for investors to ignore, and the stock has a potential bullish catalyst coming in 2022 that could begin to unlock that value. Management is set to provide a long-term strategy update in March. Citigroup is one of the most attractive value stocks in the financial sector, trading at just 0.66 times book value and 7.7 times forward earnings. Bank of America has a “buy” rating and a $100 price target for C stock, which closed at $60.63 on Dec. 14. That massive implied upside is unrivaled among the best bank stocks to buy for 2022.
Bank of America Corp. (BAC)
Unlike Citigroup, Bank of America shares are up about 45% in 2021 and have tremendous momentum heading into 2022. CFRA Research analyst Kenneth Leon upgraded Bank of America in November and says the bank has one of the highest ratios of net interest income to total net income among large banks. Net interest margins are expected to expand when the Fed begins raising interest rates, and Leon predicts that the next rate hike cycle will begin in the third quarter of 2022. CFRA has a “buy” rating and a $51 price target for BAC stock, which closed at $44.12 on Dec. 14.
Banco Santander SA (SAN)
Banco Santander is the largest Spanish bank by market capitalization. Morningstar analyst Johann Scholtz says Santander should consider exiting its core U.S. and U.K. retail banking businesses, which earn returns well below their cost of capital. Instead, Scholtz says Santander should focus more on its high-growth, high-profit Latin American business, potentially using U.S. and Europe asset sales to improve its balance sheet. Scholtz says Santander is the market leader in Brazil, Mexico and Chile — markets that support the company’s profitability. Morningstar has a “buy” rating and a $4.50 fair value estimate for SAN stock, which closed at $2.99 on Dec. 14.
First Republic Bank (FRC)
First Republic Bank is a commercial U.S. bank that focuses on the jumbo real estate market. JPMorgan Chase analyst Steven Alexopoulos says First Republic is one of his top small- and mid-cap bank stock picks and could generate loan growth in at least the mid-teens percentage range, even as mortgage rates rise. Alexopoulos says First Republic’s growth rates in each of its businesses have accelerated as the company has scaled. He expects that First Republic’s portfolio of high-tech solutions will continue to expand its competitive moat. JPMorgan has an “overweight” rating and a $240 price target for FRC stock, which closed at $203.61 on Dec. 14. Although relatively unknown, FRC deserves a spot among the best bank stocks to buy now.
Goldman Sachs Group Inc. (GS)
Shares of investment bank Goldman Sachs have gained more than 40% in 2021, but Poonawala says Goldman has more upside ahead in 2022. Poonawala says Goldman shares are still attractively valued given his expectations of positive capital market momentum and potential efficiency gains in coming quarters. He has been particularly impressed by the performance of the bank’s consumer and wealth management segment, which generated 16% quarter-over-quarter revenue growth in the third quarter. Even after the big rally, Goldman still trades at less than 10 times forward earnings. Bank of America has a “buy” rating and a $490 price target for GS stock, which closed at $388.82 on Dec. 14.
Wells Fargo & Co. (WFC)
Wells Fargo shares have also outperformed in 2021, gaining more than 60% this year. Fortunately, Leon says the Wells Fargo turnaround story will continue in 2022. He says rebounding consumer loan demand, increased card activity and higher loan balances will be positive trends for Wells Fargo in 2022, helping make it one of the best bank stocks to buy for the year ahead. The bank also recently said credit risk exposures have subsided. Improving investor sentiment and Wells Fargo management’s increased focus on execution could pressure the Federal Reserve to lift the company’s asset cap, a potential bullish catalyst for the stock. CFRA has a “buy” rating and a $52 price target for WFC stock, which closed at $48.89 on Dec. 14.
Canadian Imperial Bank of Commerce (CM)
Canadian Imperial Bank of Commerce is the fifth-largest Canadian commercial bank and is expanding its business into the U.S. and Caribbean. Morningstar analyst Eric Compton says the first half of 2022 may be tough, but Canadian Imperial’s full-year growth targets are achievable. In addition, he says revenue growth will accelerate and margins will likely expand in the second half of the year, creating opportunity for stock price upside. Compton says the bank has improved its operating performance and has likely gained market share in 2021. Morningstar has a “buy” rating and a $122 fair value estimate for CM stock, which closed at $110.71 on Dec. 14.
SVB Financial Group (SIVB)
SVB Financial is a niche commercial bank focused on technology, life sciences, private equity and venture capital firms. Alexopoulos says SVB is perfectly positioned to capitalize on a level of VC investment that will more than double peak dot-com bubble levels. SVB recently issued the strongest guidance numbers Alexopoulos has ever seen from the company for 2022, but he says those numbers may still be conservative since they do not include any interest rate hikes and assume a drop in venture capital and private equity activity. JPMorgan has an “overweight” rating and an $875 price target for SIVB stock, which closed at $676.68 on Dec. 14.
East West Bancorp Inc. (EWBC)
Next among the top bank stocks to buy for 2022 is East West Bancorp, a middle-market lender that specializes in trade between the U.S. and China. Poonawala says East West represents the best risk-reward ratio among small- and mid-cap banking peers, and the stock has significant room for earnings multiple expansion. He says East West has an impressive revenue growth outlook and industry-leading returns on assets and tangible common equity. Despite its operational outperformance, Poonawala says East West stock is trading at a valuation discount to other high-growth, high-return bank stocks. Bank of America has a “buy” rating and a $110 price target for EWBC stock, which closed at $76.75 on Dec. 14.
HSBC Holdings PLC (HSBC)
HSBC is one of the world’s largest banking and financial services companies, operating in 64 countries and territories. CFRA analyst Firdaus Ibrahim has praised HSBC’s decision to double down on Asia and prioritize its fee-generating wealth management business. Ibrahim says this strategy shift should help HSBC outgrow its European banking peers. He says HSBC’s decision to exit underperforming businesses in the U.S. and France was the right move, and the bank’s recently announced $2 billion share buyback program demonstrates management’s near-term confidence. CFRA has a “strong-buy” rating and a $38 price target for HSBC stock, which closed at $28.72 on Dec. 14.
10 of the best bank stocks to buy for 2022:
Citigroup Inc. (C)
Bank of America Corp. (BAC)
Banco Santander SA (SAN)
First Republic Bank (FRC)
Goldman Sachs Group Inc. (GS)
Wells Fargo & Co. (WFC)
Canadian Imperial Bank of Commerce (CM)
SVB Financial Group (SIVB)
East West Bancorp Inc. (EWBC)
HSBC Holdings PLC (HSBC)
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10 of the Best Bank Stocks to Buy for 2022 originally appeared on usnews.com
