In this article, we will be taking a look at the 12 best bank stocks to buy for long-term. To skip our detailed analysis of the banking industry, you can go directly to see the 5 Best Bank Stocks To Buy For Long-Term.
The Banking Sector In 2023
The banking industry has had an eventful year so far. With the crash of the Silicon Valley Bank, multiple downgrades from the S&P and Moody's, and generally negative investor sentiment surrounding this industry, it is unsurprising how many investors have been steering clear of banking companies and stocks. However, as we have headed into the second half of 2023, some are beginning to harbor renewed hopes for the sector. There are several reasons for this renewed optimism, the primary ones being a show of resilience by US banks in the face of adversity and the analysis of some experts who believe that higher interest rates may actually be beneficial for some banks.
One such expert is Bob Diamond, the CEO of Atlas Merchant Capital and the former CEO of Barclays. Diamond joined CNBC's "Closing Bell Overtime" on September 21 to discuss how higher rates may be better for at least the regional banking sector. Here's what he first noted on the status of interest rates in the US:
"The bar for reversing the position of the Fed is very, very high. We did feel it was time for a pause and they have and they have paused, but I think one of the things we are seeing in the survey, the summary of economic projections from the Fed presidents and the Fed governors is that when they project out for the funds rate at the end of 2024, it's pretty flat, the word is today. I think even that supports the view that rates are going to stay higher longer."
Can Higher Rates Be Better For Some Banks?
On the subject of the banking sector, Diamond went on to discuss how these higher rates can be expected to impact regional banks:
"We're very positive on regional banks. We think they're incredibly important to our economy, to the depths of the financial markets in the US. We do expect to see some consolidation there, but I think on balance, they've adjusted pretty well to the higher interest rates of 5%. As you and I both know, if they can level set that and manage to where they are today, higher rates are positive for banks. So five, five and a half percent rates, starting from scratch, are far better for the community of regional banks than zero interest rates."
Diamond's analysis on the matter does not mention how investors can expect bigger banks like Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM) to react to these rates which are expected to stay higher for longer. However, the picture he paints does seem to be less bleak than the one representing the banking sector at the start of this year. In any case, the fact that large banks that have maintained a reliable presence in the US markets and abroad for so long are, at this point, trading lower than usual can actually be an incentive for investors to start pouring their money into the banking sector at this moment. This is because right now, investors have gained the opportunity to buy quality banking stocks at a relative discount to what they would have had to pay in their prime. Considering this, we have compiled a list of some of the best bank stocks to buy right now. Our list also includes some undervalued bank stocks to buy.
Photo by Mirza Babic on Unsplash
We selected a variety of diversified and regional banking stocks by using Insider Monkey's hedge fund data for the second quarter. The stocks are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest number.
Best Bank Stocks To Buy For Long-Term
12. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 42
U.S. Bancorp (NYSE:USB) is a diversified banking company based in Minneapolis, Minnesota. The company provides a range of financial services, including corporate and commercial banking, consumer and business banking, wealth management and investment services, and payment services, among more.
Chris Kotowski, an analyst at Oppenheimer, maintained an Outperform rating on shares of U.S. Bancorp (NYSE:USB) on August 18. The analyst also placed a price target of $67 on the stock.
There were 42 hedge funds long U.S. Bancorp (NYSE:USB) in the second quarter. Their total stake value in the company was $554.9 million.
“Notable detractors to performance in the first half were U.S. Bancorp (NYSE:USB), Charles Schwab (SCHW), and UnitedHealth Group (UNH), which were down 22.09%, 31.65%, and 8.65%, respectively. US Bank, based in Minnesota, was caught up in the recent mini crisis in the banking industry. The company recently acquired Union Bank for $8 billion, which hit its capital reserve levels, and the timing was unfortunate given the selloff in the industry following that acquisition. However, we believe US Bank should be able to rebuild its capital reserve over the coming quarters, putting it in a better position to withstand future negative events in the industry.”
Like Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM), U.S. Bancorp (NYSE:USB) is a banking stock that is popular among elite hedge funds today.
11. Nu Holdings Ltd. (NYSE:NU)
Number of Hedge Fund Holders: 44
JPMorgan analyst Domingos Falavina upgraded shares of Nu Holdings Ltd. (NYSE:NU) from Neutral to Overweight on September 11. The analyst also announced a price target of $9 on the stock.
Nu Holdings Ltd. (NYSE:NU) is a banking company that provides a digital banking platform and digital financial services. The company is based in Brazil. It offers Nu credit and debit cards and mobile payment solutions, among more.
Nu Holdings Ltd. (NYSE:NU) was spotted in the 13F holdings of 44 hedge funds during the second quarter, with a total stake value of $2.9 billion.
Berkshire Hathaway was the most prominent shareholder in Nu Holdings Ltd. (NYSE:NU) at the end of the second quarter, holding 107.1 million shares in the company.
10. Citizens Financial Group, Inc. (NYSE:CFG)
Number of Hedge Fund Holders: 46
We saw 46 hedge funds long Citizens Financial Group, Inc. (NYSE:CFG) at the end of the second quarter. Their total stake value in the company was $491.4 million.
Citizens Financial Group, Inc. (NYSE:CFG) is a regional banking company and the bank holding company for Citizens Bank, National Association. The company is based in Providence, Rhode Island. It provides retail and commercial banking products and services.
An Overweight rating was maintained on shares of Citizens Financial Group, Inc. (NYSE:CFG) by Scott Siefers, an analyst at Piper Sandler, on September 15. The analyst also placed a price target of $31 on the stock.
9. KeyCorp (NYSE:KEY)
Number of Hedge Fund Holders: 49
Adage Capital Management was the largest shareholder in KeyCorp (NYSE:KEY) at the end of the second quarter, holding 6.6 million shares in the company.
KeyCorp (NYSE:KEY) is another diversified banking company on our list. It is the holding company for KeyBank National Association and is based in Cleveland, Ohio. The company provides retail and commercial banking products such as deposits, investment products and services, and personal finance and financial wellness services, among more.
Shares of KeyCorp (NYSE:KEY) were upgraded from Neutral to Overweight on September 15 by Scott Siefers at Piper Sandler. The analyst also raised his price target on the stock from $12 to $13.50.
KeyCorp (NYSE:KEY) was seen in the portfolios of 49 hedge funds during the second quarter, with a total stake value of $334.1 million.
8. First Citizens BancShares, Inc. (NASDAQ:FCNCA)
Number of Hedge Fund Holders: 49
A total of 49 hedge funds were long First Citizens BancShares, Inc. (NASDAQ:FCNCA) at the end of the second quarter. Their total stake value in the company was $2.6 billion.
On September 20, Steven Alexopoulos, an analyst at JPMorgan, initiated coverage on shares of First Citizens BancShares, Inc. (NASDAQ:FCNCA) with an Overweight rating and a price target of $1850.
First Citizens BancShares, Inc. (NASDAQ:FCNCA) is the bank holding company for First-Citizens Bank & Trust Company. It is based in Raleigh, North Carolina. The company's products include checking, savings, money market, and time deposit accounts, among more.
Here's what Silver Beech Capital had to say about First Citizens BancShares, Inc. (NASDAQ:FCNCA) in its second-quarter 2023 investor letter:
“We introduced First Citizens BancShares, Inc. (NASDAQ:FCNCA) in our first quarter 2023 letter. As noted, we invested in First Citizens after they acquired Silicon Valley Bank. The investment was based on our thesis that the acquisition conservatively accreted over $8 billion to First Citizens’ common equity whereas the market was pricing in substantially less.
Prior to First Citizens’ earnings release, we continued to build conviction in our analysis and sized the position to the largest in the Fund. In its May 10 earnings release, in line with our analysis, First Citizens posted ~$9.1 billion of accretion from its acquisition of Silicon Valley Bank, and the market responded accordingly. We fully exited our position after the earnings release as the market incorporated the full accretion. Our investment in First Citizens generated a ~23% return over a 5-week holding period.
As we discussed in our first quarter 2023 letter, we have tracked First Citizens for several years and believe the bank is led by world-class management. The bank remains on our investment watchlist, and we remain confident the company will continue to create value for shareholders, especially in light of likely future banking sector consolidation that will benefit First Citizens’ opportunistic acquisition strategy and capital strength. We exited our position in First Citizens in favor of more attractive risk-adjusted opportunities.”
7. PNC Financial Services Group, Inc. (NYSE:PNC)
Number of Hedge Fund Holders: 52
Holding 950,057 shares in the company, Balyasny Asset Management was the largest shareholder in PNC Financial Services Group, Inc. (NYSE:PNC) at the end of the second quarter.
A Neutral rating was maintained on shares of PNC Financial Services Group, Inc. (NYSE:PNC) on September 15 by Piper Sandler's Scott Siefers. The analyst also raised his price target on the stock from $130 to $131.
PNC Financial Services Group, Inc. (NYSE:PNC) is a diversified financial services company based in Pittsburgh, Pennsylvania. The company operates through its Retail Banking, Corporate & Institutional Banking, and Asset Management Group segments.
In total, 52 hedge funds were long PNC Financial Services Group, Inc. (NYSE:PNC) in the second quarter, with a total stake value of $630.6 million.
“We are taking advantage of the current weakness in bank stocks. In Q1, we purchased The PNC Financial Services Group, Inc. (NYSE:PNC) and US Bancorp. These are banks we have known for years. They are well-managed and have solid capital positions and liquidity. At the end of Q1, we had an ~7% weighting in banks consisting of PNC, US Bancorp and Bank of America. All 3 are among the 10 largest US banks. We believe the range of probabilities and long-term outcomes are tilted in our favor at current prices but are proceeding with caution for several reasons. First, while we believe deposit-runs have likely burned themselves out, there is a non-zero risk these runs spread wider than our base case. Second, we expect more regulation in coming years which will increase the cost of doing business, potentially in exchange for higher FDIC limits. Third, at the very least we expect banks to cease buybacks for the rest of the year to build up liquidity and capital ratios. There is an increasingly more likely outcome that banks issue equity capital and preferred stock once markets stabilize. Fourth, with the banking system in shock, it will likely retrench, which will constrict capital to the US economy. Coupled with the “long and variable lags” of Fed policy, this will slow US economic growth beyond what private credit markets can make up.”
6. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 54
Morgan Stanley (NYSE:MS) is an investment banking and brokerage company based in New York. The company provides capital raising and financial advisory services, equity and fixed-income products, and more.
Alevizos Alevizakos, an analyst at HSBC, initiated coverage on shares of Morgan Stanley (NYSE:MS) on September 7 with a Buy rating and a price target of $99.
Our hedge fund data shows 54 hedge funds long Morgan Stanley (NYSE:MS) in the second quarter. Their total stake value in the company was $780.8 million.
Like Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) is a reliable bank stock many hedge funds are piling into today.
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Disclosure: None. 12 Best Bank Stocks To Buy For Long-Term is originally published on Insider Monkey.