2022 has been a rough ride for bank stocks. Recession fears continue to drag financial shares down, leading to significant buying opportunities. For instance, the Dow Jones U.S. Financial Services index has fallen more than 23% year-to-date (YTD). Similarly, the Financial Select Sector SPDR Fund (NYSEARCA:XLF) has declined around 23% in 2022.
Meanwhile, the Federal Reserve (Fed) announced that on Jun. 23, it would release the results of its annual stress test of the largest domestic banks. Analysts note that the current scenario includes a global recession combined with increased stress in commercial real estate, as well as corporate debt markets.
According to the Bank for International Settlements, Common Equity Tier 1, or CET1, “is the highest quality of regulatory capital, as it absorbs losses immediately when they occur.” For large banks, the Fed has set the CET1 capital requirement at 4.5%.
As in previous years, investors will focus on the stress capital buffer these financial institutions will need to hold as a protective cushion in case of an economic collapse. Once bank stocks successfully pass their stress tests, they can use the extra capital for dividend payouts and stock repurchases.
With that information, here are seven bank stocks to buy ahead of the Jun. 23 bank stress test results:
Capital One Financial Corporation
The Goldman Sachs Group, Inc.
JPMorgan Chase & Co.
The PNC Financial Services Group, Inc.
Wells Fargo & Company
Bank Stocks to Buy: Capital One Financial (COF)
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52-week range: $105.54 – $177.95
Net revenue increased 15% year-over-year (YOY) to $8.17 billion. However, adjusted net income declined to $5.62 per diluted share, down from $7.03 in the prior-year quarter. The CET1 capital ratio ended the quarter at 12.7%.
Top line growth was driven by a 10% YOY increase in net interest income and a 38% increase in non-interest income, thanks to rising consumer activity levels.
Management anticipates full-year 2022 revenue to reach $33.3 billion. However, the adjusted net income margin is expected to drop below 25% from 39.3% last year.
COF stock has dropped almost 33.4% YTD. Shares are changing hands at a bargain 5.6 times forward earnings and just 0.8 times book value while offering a 2.25% dividend yield. Wall Street’s 12-month median price forecast for Capital One Financial stock stands at $163.
Source: Willy Barton / Shutterstock.com
52 week range: $45.40 – $74.64
Citigroup (NYSE:C) is the fourth largest bank stateside as measured by assets. This banking behemoth offers consumer and corporate banking, brokerage, and wealth management products and services worldwide.
Management issued Q1 results on Apr. 14. Revenue declined 2% YOY to $19.2 billion. Net income came in at $2.02 per diluted share, down 44% from $3.62 a year ago. The CET1 capital standardized ratio came in at 11.4%.
Citibank is exiting operations from 13 international consumer banking units in less profitable markets. In addition, it wants to shift its consumer banking operations to high-wealth regions. Management also wants to improve the target metrics for banking and securities brokerage.
So far in 2022, C stock has lost over 28%. At present, the bank boasts one of the highest dividend yields among its peers at a robust 4.44%.
Shares are trading at a significant discount to its peers at 7.4 times forward earnings and just 0.55 times book value. Lastly, the 12-month median price forecast for Citigroup stock is $60.
Bank Stocks to Buy: Goldman Sachs (GS)
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52-week range: $284.31- $426.16
Goldman Sachs reported Q1 financials on Apr. 14. Revenue declined 27% YOY to $12.9 billion. Diluted earnings per share came in at $10.76, down from $18.60 in the prior-year quarter. The CET1 capital standardized ratio stood at 14.6%.
Revenue in its investment banking division fell substantially due to a significant decline in initial public offerings and special purpose acquisition company mergers. Yet, Goldman’s trading business is benefiting from rising market volatility. In Q1, trading revenues in fixed income, currency, and commodities business increased 21% YOY.
GS stock is was recently changing hands at 52-week lows, down 25% YTD. Yet, it currently supports a healthy 2.83% dividend yield. Shares are attractively priced at 8 times forward earnings and one times book value. Lastly, the 12-month median price forecast for Goldman Sachs stock stands at $420.
JPMorgan Chase (JPM)
52-week range: $113.17 – $172.96
Revenue decreased by 5% YOY to $31.6 billion. Net income declined to $2.63 per share, compared to $4.50 a year ago. The CET1 capital standardized ratio came in at 12.6%.
The banking giant has recently boosted its 2022 projections for net interest income (NII) to $56 billion, up 26% YOY from the $44.5 billion in 2021. Management also anticipates growing its capital markets revenue in its corporate and investment banking division by 15% to 20% YOY.
JPM stock has declined more than 30% YTD. But it currently offers a juicy 3.5% dividend yield.
Shares look inexpensive at 10.4 times forward earnings and 1.35 times book value. Meanwhile, the 12-month median price forecast for JPMorgan stock is $153.
Bank Stocks to Buy: Morgan Stanley (MS)
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52-week range: $74.14 – $109.73
Morgan Stanley (NYSE:MS) has roughly $5 trillion in client assets. It boasts significant market positions in its institutional securities, wealth management, and investment management segments.
Management issued Q1 numbers on Apr. 14. Net revenue saw a modest 6% YOY decline to $14.8 billion. Adjusted earnings per diluted share fell 11% YOY to $2.06, compared to $2.22 in the prior-year quarter. The CET1 capital standardized ratio ended the quarter at 14.5%.
The bank saw a significant slowdown in investment banking activity. Institutional securities revenue declined 11% YOY to $7.66 billion, while investment banking revenue fell 37%. However, its E*TRADE and Eaton Vance acquisitions have increased revenue from wealth management and investment management services.
MS stock was recently trading around its 52-week lows, down 22% YTD. Yet, it currently generates a generous 3.7% dividend yield. Shares are changing hands at 10.7 times forward earnings and 1.5 times book value. Finally, the 12-month median price forecast for Morgan Stanley stock stands at $103.
PNC Financial Services (PNC)
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52-week range: $152.35 – $228.14
PNC Financial Services (NYSE:PNC) is one of the largest commercial banks stateside. In addition to specialties in asset management and residential mortgage banking, it offers financial services in retail, corporate and institutional banking.
The group released Q1 metrics on Apr. 14. Revenue increased 11% YOY to $4.69 billion. Adjusted earnings came in at $3.29 per diluted share, down from $4.11 in the prior-year period. The CET1 capital ratio ended the period at 9.9%.
Rising interest rates are expected to boost NII and lead to margin expansion in the coming months. For fiscal-year 2022, PNC forecasts revenue growth to come in at 9% to 11%. Moreover, the board recently announced a 20% dividend hike, currently generating an enticing 3.85% yield.
So far in 2022, PNC stock has lost over a fifth of its value. Shares are changing hands at 11.1 times forward earnings and 1.3 times book value. Lastly, the 12-month median price forecast for PNC Financial Services stock stands at $202.50.
Bank Stocks to Buy: Wells Fargo (WFC)
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52-week range: $37.01 -$60.30
Wells Fargo (NYSE:WFC) offers retail, commercial and corporate banking services. It is the third largest bank by assets. However, since 2018, it has been operating under a $1.95 trillion asset cap imposed by the Fed in the aftermath of the phony-accounts scandal.
The bank put out Q1 results on Apr. 14. Revenue declined 5% YOY to $17.59 billion. Net income was 88 cents per diluted share, compared to $1.01 a year ago. The CET1 ratio ended the quarter at 10.5%.
Fee income decreased 14% YOY due to rising interest rates. Yet, management anticipates full-year 2022 NII to come in the mid-teen percentage range, driven by strong commercial loan growth. Meanwhile, the bank has enacted a multi-year plan to save $10 billion in annual expenses.
WFC stock recently traded at 52-week lows, down 23% YTD. It also offers a 2.67% dividend yield. Shares are changing hands at 10.2 times forward earnings and just one times book value. Finally, the 12-month median price forecast for Wells Fargo stock is $60.
On the date of publication, Tezcan Gecgil, Ph.D., did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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