Analysts see big upside for these undervalued bank stocks.
After a big year in 2021, bank stocks are outperforming once again in 2022. The combination of a recovering U.S. economy and potential for aggressive Federal Reserve interest rate hikes could set up bank stocks for outsize earnings growth in the next couple of years. Bank stocks have also benefited from reserve releases and dividend hikes in recent quarters. Even after big 2021 gains and a hot start to 2022, analysts say many bank stocks remain undervalued. 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 peers in 2021, but Bank of America analyst Ebrahim Poonawala says Citigroup management is on the right track with its efforts to restructure and simplify the bank’s global business, including an exit strategy for Mexico. Citigroup is trading at a discount to tangible book value, but Poonawala says a clear update at its upcoming investor day event March 2 could unlock value in Citigroup shares. Bank of America has a “buy” rating and a $100 price target for C stock, which closed at $63.22 on Feb. 23.
Bank of America Corp. (BAC)
Bank of America shares were up about 47% in 2021, but that momentum hasn’t continued so far in 2022. CFRA Research analyst Kenneth Leon says Bank of America is particularly well positioned for the rising interest rate cycle, given its high ratio of net interest income to total net revenue ratio relative to peers. Leon is projecting that loan volume and loan balances in the bank’s consumer and commercial/industrial units will continue to rise throughout 2022. He forecasts 5% revenue growth in 2022 and 7% growth in 2023 as interest margin expands. CFRA has a “buy” rating and a $53 price target for BAC stock, which closed at $44.78 on Feb. 23.
M&T Bank Corp. (MTB)
M&T Bank is a commercial-focused U.S. regional bank that operates in eight U.S. states in the Northeast and mid-Atlantic. RBC Capital Markets analyst Gerard Cassidy says M&T has a top-tier management team and is one of the best in the business at managing capital among the top 20 banks. Cassidy says the bank’s planned $7.6 billion acquisition of People’s United Financial Inc. (PBCT) will immediately boost M&T’s tangible book value and create an opportunity to grow earnings and generate value in the long term. RBC has an “outperform” rating and a $170 price target for MTB stock, which closed at $180.81 on Feb. 23.
Lloyd’s Banking Group PLC (LYG)
Lloyd’s Banking Group is a diversified bank and insurance provider based in the U.K. Morningstar analyst Niklas Kammer says the bank is adequately capitalized after it passed the Bank of England’s stress test in December. Kammer says Lloyd’s has become a low-risk play on domestic U.K. retail and commercial banking following its restructuring in the aftermath of the financial crisis. As mortgage pricing has become pressured, Kammer says, Lloyd’s has shifted focus to financial planning offerings, credit cards and loans to small- and medium-size enterprises. Morningstar has a “buy” rating and a $3.70 fair value estimate for LYG stock, which closed at $2.80 on Feb. 23.
First Republic Bank (FRC)
First Republic Bank is a commercial U.S. bank that focuses on the jumbo real estate mortgage market. Poonawala says First Republic shares have underperformed peers in 2022 in large part due to leadership uncertainty following the unexpected departure of co-CEO Hafize Gaye Erkan in January. For now, investors may prefer banks that have more sensitivity to rising interest rates. However, Poonawala says the bank is positioned to deliver above-average shareholder returns in the long term, and the announcement of a new CEO could be a bullish catalyst. Bank of America has a “buy” rating and a $240 price target for FRC stock, which closed at $161.87 on Feb. 23.
Goldman Sachs Group Inc. (GS)
Shares of investment bank Goldman Sachs gained 45% in 2021. However, the stock has lagged behind its banking peers so far in 2022, and Goldman reported a fourth-quarter earnings miss in January. Leon says Goldman will gain market share, grow its assets under management and generate fee income growth in 2022. In addition, he says Goldman shares trade at a significant earnings multiple discount to leading asset managers like Charles Schwab Corp. (SCHW) and BlackRock Inc. (BLK), along with the S&P 500 as a whole. CFRA has a “strong buy” rating and a $440 price target for GS stock, which closed at $341.19 on Feb. 23.
BBVA SA (BBVA)
BBVA is the third-largest bank in Spain and has international operations in Latin America. RBC Capital Markets analyst Benjamin Toms says BBVA’s sale of its U.S. assets has provided the bank with plenty of excess capital and financial flexibility. Toms says BBVA has consistently outperformed its peers in improving its cost efficiency. He says BBVA is well positioned with its digital banking technology, and its exposure to Mexico and Turkey provides access to markets with relatively young populations, providing the potential for long-term banking growth outperformance. RBC has an “outperform” rating and an $8.30 price target for BBVA stock, which closed at $6.33 on Feb. 23.
Wells Fargo & Co. (WFC)
Wells Fargo has been the top-performing bank stock since the beginning of 2021, gaining 59% last year. Despite some modest gains so far this year, Poonawala says, Wells Fargo remains a top stock pick. He says the bank is well positioned for rising interest rates and rebounding loan demand, and its expense leverage sets it apart from other large-cap banks. In addition, Poonawala says the bank’s sizable capital return should help it grow its return on tangible common equity. Bank of America has a “buy” rating and a $70 price target for WFC stock, which closed at $53.95 on Feb. 23.
SVB Financial Group (SIVB)
SVB Financial is a niche commercial bank focused on technology, life sciences, private equity and venture capital firms. CFRA analyst Alexander Yokum says SVB has more favorable profitability metrics than peers. The bank has generated healthy loan growth, which has been boosted by record venture capital and private equity activity. Yokum says SVB faces limited competition as it expands its international business. Finally, Yokum estimates that each 0.25% rise in the federal funds rate will boost SVB’s annualized net interest income by between $100 million and $130 million. CFRA has a “buy” rating and a $760 price target for SIVB stock, which closed at $585.28 on Feb. 23.
East West Bancorp Inc. (EWBC)
Last 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 should continue to outperform its bank stock peers. The stock trades at just 11.6 times forward earnings, and Poonawala says its diversified lending profile and “extremely compelling risk-reward” balance should be attractive to investors. In addition, he says East West’s investments in technology infrastructure, digital banking and wealth management will create long-term growth opportunities. Bank of America has a “buy” rating and a $118 price target for EWBC stock, which closed at $87.04 on Feb. 23.
10 of the best bank stocks to buy for 2022:
— Citigroup Inc. (C)
— Bank of America Corp. (BAC)
— M&T Bank Corp. (MTB)
— Lloyd’s Banking Group PLC (LYG)
— First Republic Bank (FRC)
— Goldman Sachs Group Inc. (GS)
— BBVA SA (BBVA)
— Wells Fargo & Co. (WFC)
— SVB Financial Group (SIVB)
— East West Bancorp Inc. (EWBC)
More from U.S. News
5 of the Best Stocks to Buy for February
Billionaire Ray Dalio’s 9 Top Stock and ETF Picks for 2022
7 Best Cryptocurrency Mining Stocks
10 of the Best Bank Stocks to Buy for 2022 originally appeared on usnews.com
Update 02/24/22: This story was published at an earlier date and has been updated with new information.
