Analysts see big upside for these undervalued bank stocks.
After a big year in 2021 and a hot start to 2022, bank stocks have lagged in recent months. Aggressive Federal Reserve interest rate hikes could set up bank stocks for outsize earnings growth in the next couple of years. However, exposure to the Ukraine conflict and the possibility of slowing loan growth have weighed on bank stocks. Despite the recent volatility, analysts say many bank stocks remain undervalued. Banks typically thrive in a higher-rate environment, but only if the U.S. can avoid a recession. Here are 10 of the best bank stocks to buy in 2022, according to CFRA Research analysts.
Bank of America Corp. (ticker: BAC)
Bank of America is one of the largest U.S. banks. Analyst Kenneth Leon says Bank of America is particularly well positioned to capitalize on rising interest rates, given the rate sensitivity of its portfolio. As of the second quarter, Bank of America was still generating 13% year-over-year loan growth, even in a challenging environment. Leon says the bank has a high-quality consumer credit card customer base, which will help reduce risk in the event of a recession. He anticipates “significantly higher” net interest income, or NII, growth in 2023. CFRA has a “buy” rating and $39 price target for BAC stock, which closed at $34.88 on Oct. 18.
HSBC Holdings PLC (HSBC)
HSBC is one of the world’s largest banking and financial services providers and has more than 39 million customers. Analyst Firdaus Ibrahim says global rate hikes should clear the path for the Asia-focused U.K. bank to generate double-digit returns on equity in 2023. Ibrahim says HSBC’s decision to exit underperforming U.S. and French retail banking markets will help it focus on more profitable segments. HSBC has ambitious capital return goals as well, including plans for a 50% dividend payout ratio and a resumption of quarterly buybacks. CFRA has a “strong buy” rating and $42 price target for HSBC, which closed at $26.70 on Oct. 18.
Bank of Montreal (BMO)
Bank of Montreal is one of the largest Canadian commercial banks. Analyst Alexander Yokum says BMO has relatively low exposure to the slumping Canadian mortgage market compared to peers, creating the opportunity for the stock to outperform. Yokum says Bank of Montreal’s acquisition of Bank of the West came at a steep price but will allow the company to expand its geographical footprint and gain market share in California. He says Bank of Montreal has low credit risk and is positioned for high-single-digit loan growth in fiscal 2023. CFRA has a “buy” rating and $113 price target for BMO stock, which closed at $89.68 on Oct. 18.
Canadian Imperial Bank of Commerce (CM)
Canadian Imperial Bank of Commerce is another one of the largest Canadian commercial banks and has a growing presence in the U.S. as well. Yokum projects impressive loan growth and says the stock trades at an attractive valuation. He says Canadian Imperial also has several bullish catalysts, including mortgage origination market share gains, a growing U.S. commercial banking business and cost-cutting and streamlining opportunities. Finally, Canadian Imperial’s 5.6% dividend yield is the highest on this list, making it an excellent option for income investors. CFRA has a “buy” rating and $58 price target for CM stock, which closed at $43.55 on Oct. 18.
First Republic Bank (FRC)
First Republic Bank is a U.S. regional bank that offers private banking and wealth management services, largely in California and New York. Yokum says First Republic’s business model is impressive, and the bank has successfully gained market share during past economic downturns. He says the bank has excellent credit quality, and its wealth management business has been an impressive growth source. Yokum projects at least 20% revenue growth in 2022 and says First Republic is growing at double or triple the rate of its peers. CFRA has a “buy” rating and $166 price target for FRC stock, which closed at $117.21 on Oct. 18.
Fifth Third Bancorp (FITB)
Fifth Third Bancorp is a U.S. regional bank that operates primarily in the Midwest and Southeast regions. Yokum says Fifth Third has an attractive fee-generating business and the stock trades at an appealing valuation. The bank has a growing middle-market commercial lending business, and it is expanding its geographical footprint deeper into the high-growth Southeastern market. Yokum says new CEO Tim Spence will help Fifth Third adapt to the technological challenges of a rapidly evolving banking business. Yokum projects 17% NII growth for the bank in 2022. CFRA has a “buy” rating and $40 price target for FITB stock, which closed at $34.86 on Oct. 18.
SVB Financial Group (SIVB)
SVB Financial is a specialized U.S. regional commercial bank that focuses on technology, life sciences, wineries, and private equity and venture capital firms. Yokum says SVB has a niche customer base operating in secular growth markets that should generate impressive returns over time. Unfortunately, tech sector valuations have plummeted in 2022, creating concerns among investors about the health of SVB’s customer base. SVB’s stock price is down nearly 50% in 2022, making it the worst-performing investment on this list. However, Yokum says the weakness is a buying opportunity. CFRA has a “buy” rating and $430 price target for SIVB stock, which closed at $330.04 on Oct. 18.
Regions Financial Corp. (RF)
Regions Financial is a U.S. regional bank that provides banking and wealth management services in 16 states in the South and Midwest regions. Yokum says the bank’s extensive hedging will keep its net interest margin, or NIM, more stable than peers as it repositions its balance sheet for a higher-rate environment. That stability has helped Regions shares outperform all the other bank stocks on this list and generate a year-to-date total return of about 2% through Oct. 18 in a difficult environment. Yokum projects stable 7% revenue growth in both 2022 and 2023. CFRA has a “buy” rating and $24 price target for RF stock, which closed at $21.66 on Oct. 18.
Huntington Bancshares Inc. (HBAN)
Huntington Bancshares is a U.S. regional bank focused on the Midwestern region. Yokum is optimistic Huntington will maintain loan growth and benefit from rising interest rates in the remainder of 2022 and into 2023. He is bullish on Huntington’s 2021 acquisition of Detroit-based TCF Financial and says Huntington has opportunities to continue to identify deal synergies and cost-cutting measures. A sharp decline in mortgage activity is a headwind, but Yokum projects between 16% and 18% revenue growth and between 8% and 10% organic loan growth for Huntington in 2022. CFRA has a “buy” rating and $15 price target for HBAN stock, which closed at $14.11 on Oct. 18.
Citizens Financial Group Inc. (CFG)
Citizens Financial is a U.S. regional bank that operates in 11 states in the Northeast, mid-Atlantic and Midwest regions. Yokum says Citizens provides a rare combination of above-average loan growth, impressive expense management and an attractive valuation. In addition, he says the bank is gaining market share, expanding its geographical reach and beefing up its digital offerings. He anticipates moderate organic loan growth and mid-teens NII growth for Citizens in 2022. Yokum projects 6.6% EPS growth and 13.4% revenue growth in 2023 as well. CFRA has a “buy” rating and $44 price target for CFG stock, which closed at $36.94 on Oct. 18.
10 of the best bank stocks to buy for 2022:
— Bank of America Corp. (BAC)
— HSBC Holdings PLC (HSBC)
— Bank of Montreal (BMO)
— Canadian Imperial Bank of Commerce (CM)
— First Republic Bank (FRC)
— Fifth Third Bancorp (FITB)
— SVB Financial Group (SIVB)
— Regions Financial Corp. (RF)
— Huntington Bancshares Inc. (HBAN)
— Citizens Financial Group Inc. (CFG)
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10 of the Best Bank Stocks to Buy for 2022 originally appeared on usnews.com
Update 10/19/22: This story was previously published at an earlier date and has been updated with new information.
