Key points
- Citi received a double upgrade, going directly from Underweight to Overweight.
- Goldman is perhaps the strongest stock, but it doesn’t look cheap.
- Bank of America is the laggard but also offers the most value right now.
- 5 stocks we like better than Bank of America
As expectations rise that the Fed will cut rates this year, bank stocks are back in focus. Even though it looked like 2023 would be considered one of the poorest years in the recent past, improving inflation data in the fourth quarter triggered a broad rally in all stocks, including banks.
THE Invesco KBW Bank ETF NASDAQ: KBWB it has since jumped nearly 40%, easily outpacing the 17% return of the S&P 500. With this kind of buying momentum, bank stocks are finding themselves more popular than they have in a long time. Wall Street analysts are also on the bullish side, which is always a great sign. Here are three of the biggest banking stocks that just got upgraded and are worth keeping an eye on.
Citi shares have gone from strength to strength in recent months, with a 5% jump in yesterday’s session taking them to their highest level in almost two years. While they have no doubt ridden the broad risk-on sentiment that has driven nearly all stocks higher since November, much of the recent gains have been specific to them.
A decent fourth-quarter earnings report earlier this month fueled the rally’s fire, while a new update from the Morgan Stanley team yesterday should see the gains continue into February. What is particularly noteworthy about this move is that it was a double-barreled upgrade, which saw Morgan Stanley’s rating move from an official sell or underweight rating to an official buy or overweight rating. In most cases, upgrades or downgrades involve a single step in one direction; in this case, it would have been Neutral, so the fact that Citi made a full swing is noteworthy.
Analyst Betsy Graseck expects Basel III rules to be eased in the near term, which would pave the way for an increase in share repurchase programs. And the best news? His $65 price target was dwarfed last night by the $95 target Oppenheimer placed on Citi shares. From where the stock closed Tuesday, that indicates a rise of at least 65%.
As with Citi, Morgan Stanley has highlighted Goldman as one of the large banks with the highest levels of capital in the industry. If Basel III rules are indeed relaxed, then an enhanced share buyback program is very likely. This can be one of the most bullish winds a stock can have, as it signals to the market that management is so convinced that the stock price is trading below fair value that they are willing to purchase shares with their own capital.
Graseck raised his rating on Goldman to overweight bullish, but interestingly, his $449 price target was also surpassed by Oppenheimer’s last night. The goal is for the shares to reach $506 in the next few months, which would result in a rally of about 30%.
If Goldman shares had pulled it off, they would have surpassed their 2021 all-time high and would be trading at new highs. They’ve spent the last month consolidating after a 35% rally that started in November, so look for this week’s update to kickstart them north again.
Despite having one of the weakest performances in the last two years, Bank of America shares have gained 40% since the October low, making it one of the strongest bank stocks in recent weeks. They were also part of the club that Morgan Stanley upgraded yesterday, and Oppenheimer came out strong as well. With a high price target of $50, the 40% upside targeted here may be too good to miss.
It certainly carries a little more baggage than the others, but that only adds to Bank of America’s image as an underdog. With a price-to-earnings (PE) ratio of just 11, it is by far the cheapest of the three in terms of valuation. Citi’s is 14, while Goldman’s is 17, so with Bank of America you can’t help but feel like there’s a deal on offer right now.
The stock must exceed $35 and maintain that line. Otherwise it risks falling back into the multi-year downward trend from which it has not yet decisively emerged. If he can do that in the next few weeks, however, things will get interesting.
Before you consider Bank of America, you’ll want to hear this.
MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Bank of America wasn’t on the list.
While Bank of America currently has a “Moderate Buy” rating among analysts, top analysts believe these five stocks are better buys.
View the five stocks here
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