Performance of bank stocks has been impressive so far this year after a disappointing 2018. The KBW Nasdaq Bank Index has rallied 30.5%, the SPDR KBW Regional Banking KRE Index has risen 23% and the S&P 500 Index has gained 27.2% during the same period.
However, the rally hasn’t been a smooth one. Banks faced a number of concerns, including the Federal Reserve’s accommodative stance that led to three interest rate cuts this year. This essentially offset the positive effect of last year’s higher rates.
Also, flattening/inversion of yield curve, the ongoing U.S.-China trade conflict and expectations of global economic slowdown resulted in bearish investor sentiments. But banks were able to overcome the challenging operating backdrop on the back of strong domestic economy (which is expected to continue), modest loan demand, strong balance sheet position and improving asset quality.
Further, banks continue undertaking several initiatives that will improve revenue mix, diversify footprint and offer cross selling opportunities. Moreover, technology upgrades are expected to help ward off competition from big tech firms and FinTechs.
Additionally, easing of regulations and large amount of free cash (owing to lower corporate tax rates) have upped banking industry’s M&A activities. In one of the biggest banking deals in a decade, BB&T Corp acquired SunTrust Banks to form the sixth largest bank (in terms of assets) in the United States – Truist Financial TFC. Though the chances of any such a large transaction in the coming year are less, several small and mid-sized banks will continue to resort to inorganic growth strategy to generate revenue and cost synergies.
While these are likely to support banks’ financials in 2020, investors must keep an eye on the effect of lower interest rates and other geopolitical matters.
Bank Stocks to Stay Away From for 2020
While it will be wise to invest in bank stocks at present, not all have strong prospects. With the help of the Zacks Stock Screener, we have shortlisted three such banks, which have outperformed the S&P 500 so far this year but doesn’t have much upside left for 2020.
These banks carry a Zacks Rank #4 (Sell). Further, they have market capitalization of more than $500 million and have been witnessing downward earnings estimate revisions for 2020 over the past 60 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Year To Date Price Performance
Citizens Financial Group CFG, based in Providence, RI, has a market cap of $18 billion. Shares of this bank have jumped 37.1% so far this year. Nonetheless, the company’s 2020 earnings estimates have moved marginally lower over the past 60 days.
Shares of ConnectOne Bancorp CNOB have risen 39.3% year to date. This Englewood Cliffs, NJ-based bank’s earnings estimates for the next year have been revised 1.2% downward over the past 60 days. The company has a market cap of $911 million.
With a market cap of $4 billion, Bank OZK’s OZK earnings estimates for 2020 have moved 2.9% lower over the past 60 days. Shares of this Little Rock, AR-based bank have rallied 36.1% so far this year.
Zacks Top 10 Stocks for 2020
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Click to get this free report ConnectOne Bancorp, Inc. (CNOB) : Free Stock Analysis Report SPDR S&P Regional Banking ETF (KRE): ETF Research Reports Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report BB&T Corporation (TFC) : Free Stock Analysis Report Bank OZK (OZK) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research