3 Top Bank Stocks to Gain as Powell Stays Hawkish
Federal Reserve Chair Jerome Powell confirmed this week that policymakers expect more interest rate hikes this year to bring down inflation, and the central bank is likely to continue its aggressive monetary tightening policy. Powell said that even if inflation has moderated, it remains way above the Fed’s 2% target.
The personal consumption expenditure (PCE) price index, the Fed’s preferred inflation gauge, increased 4.7% year over year in April, per the Commerce Department. In reality, the core PCE index, which generally excludes volatile energy and food prices, jumped 4.7% in April from the same period last year.
The consumer price index (CPI), in the meantime, advanced 4% annually in May, per the Bureau of Labor Statistics. Most importantly, the core CPI increased by 5.3% year over year in May, signifying that even though price pressures have lessened to a certain degree, underlying inflation remains hot.
Powell’s hawkish remarks, by the way, come after Fed officials, in their recently concluded June policy meeting, decided not to increase interest rates for the first time in more than a year. However, central bank officials projected two more quarter-of-a-percentage-point rate hikes later this year, taking the target range to as high as 5.6%. Also, the CME FedWatch tool, as of now, shows that 76.9% of market participants are expecting a 25-basis point rate hike in July.
Now, increasing interest rates does not necessarily bode well for the stock market as it increases the cost of borrowing, curtails consumer spending, and deters economic growth. But the financial sector, in particular, tends to gain from rising interest rates, and banks are the go-to rate trade.
This is because a bank’s profit margins improve when interest rates are hiked. After all, rate hikes lead to an increase in the spread between what the lenders earn by funding long-term assets, such as loans, with short-term liabilities, like customer deposits. At the same time, the banking sector turmoil has subsided somewhat.
Given the aforesaid positives, we have selected three sturdy bank stocks that carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Pathward Financial, Inc. CASH operates as the holding company for Pathward, National Association which provides banking products and services principally in the United States. Currently, Pathward Financial has a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 1.8% over the past 60 days. CASH’s expected earnings growth rate for the current year is nearly 27%.
Coastal Financial CCB is a bank holding company. It provides account checking, savings deposits, money market, mortgage, and term loan services. Presently, Coastal Financial has a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 1.7% over the past 60 days. CCB’s expected earnings growth rate for the current year is 35.9%.
CB Financial Services CBFV is the bank holding company for Community Bank, a chartered commercial bank. The bank’s services include personal banking and business banking. Currently, CB Financial Services has a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 1.7% over the past 60 days. CBFV’s expected earnings growth rate for the current year is 37.2%.
Pathward Financial, Coastal Financial, and CB Financial Services’ estimated earnings growth rates for the next year are 13.2%, 36.7% and 3.4%, respectively.
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Pathward Financial, Inc. (CASH) : Free Stock Analysis Report
CB Financial Services, Inc. (CBFV) : Free Stock Analysis Report
Coastal Financial Corporation (CCB) : Free Stock Analysis Report
