President Trump’s tax cuts have provided the required stimulus for growth to America’s banking industry over the past year. Further, banking regulations have been reasonably modified to boost the overall performance. This is why it wouldn’t be wrong to expect players from the space to be relatively less burdened in 2019 and therefore a tad more efficient.
Meanwhile, Warren Buffett also vests his faith in America’s banks to surpass expectations this year. Taking such factors into consideration, investing in bank stocks seems prudent at this point.
Warren Buffett Bullish on Banks in 2019
As of the latest 13F filings, Warren Buffett’s Berkshire Hathaway BRK.A held roughly $76.1 billion worth of bank stocks at the end of 2018. Further, the filing also shed light on the fact that America’s most celebrated bank investor, Buffett, increased his bet on America’s biggest banks in the last quarter of 2018.
While Berkshire added big banking players to his list, he trimmed his stake in only Wells Fargo WFC. The worthy additions to the list included Bank of America BAC, U.S. Bancorp USB, JPMorgan Chase JPM and PNC Financial PNC. This clearly indicates that Buffett remains bullish on banks in 2019.
It should also be noted that while bank stocks keep finding favor in Berkshire’s portfolio, Buffett has trimmed down his bond holdings. Historically, while bank stocks benefit from rising interest rates and steepening yield curve, the bonds are impacted negatively from such economic events.
Moreover, Buffett’s move toward big banks also shed light on the fact that he expects long-term interest rates to rise. This contrarian approach is largely expected to pay off in 2019.
Value Investors Should Consider Bank Stocks in 2019
Ever since the end of the last recession which started in 2009, it has been observed that investors targeting value stocks have focused more on banks. The reason for such a move is quite simple. Value investing fundamentally screens those stocks that have lower price-to-earnings ratio (P/E) than that of the broader market average.
Moreover, diversified banks have an average forward P/E ratio of less than 10 compared with the market average of around 15. This is what makes bank stocks attractive to such investors. Moreover, it is largely expected that P/Es for large consumer banks will continue to lag the industry average this year as well.
Further, bank stocks have also lagged the overall S&P 500 over the past five years. As a matter of fact, the SPDR Bank Sector ETF (KBE) gained a meager 27.6% compared with the S&P 500’s 50.5% in the same period.
Trump’s Tax Deregulation a Major Boost to Banks
President Trump’s sweeping $1.5 trillion tax overhaul in 2017 has gone a long way in boosting the overall fortunes of America’s banking industry. The new tax code helped U.S. banks reduce their tax bills by a swashbuckling $21 billion in 2018 alone. Meanwhile, more than 70 banks in the United States have declared that they will hike wages or offers higher bonuses in the wake of the tax amendment.
4 Best Choices
Warren Buffett’s bullishness, opportunities for value investors and Trump’s deregulatory measures are expected to boost America’s banking industry in 2019.
In this context, we have selected four bank stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). For each of these stocks the price-to-earnings ratio (P/E) is lesser than the industry average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Civista Bancshares, Inc. CIVB is the bank holding company for Civista Bank, which provides a variety of banking products and services. It has a price-to-earnings ratio (P/E) of 9.22 compared with 16.80 for the industry.
The company is based out of Sandusky, OH and carries a Zacks Rank #1. The expected earnings growth rate for the current year is 9.46%. The Zacks Consensus Estimate for the current year has improved 4.6% over the past 60 days.
Bank of America Corporation is a provider of banking and financial products and services for individual consumers, small- as well as middle-market businesses, institutional investors, large corporations as well as governments. It has a price-to-earnings ratio (P/E) of 10.18 compared with 10.90 for the industry.
The company is based out of Charlotte, NC and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 8.93%. The Zacks Consensus Estimate for the current year has improved 2.5% over the past 60 days.
Fifth Third Bancorp FITB is a provider of diversified banking as well as other financial services. It has a price-to-earnings ratio (P/E) of 10.11 compared with 10.90 for the industry.
The company is based out of Cincinnati, OH and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 8.51%. The Zacks Consensus Estimate for the current year has improved 1.5% over the past 60 days.
Chemung Financial Corporation CHMG is the bank holding company for Chemung Canal Trust Company, which offers a range of banking products and services. It has a price-to-earnings ratio (P/E) of 11.92 compared with 13.40 for the industry.
The company is based out of Elmira, NY and holds a Zacks Rank #2. The expected earnings growth rate for the current year is 5.00%. The Zacks Consensus Estimate for the current year has improved 3.4% over the past 60 days.
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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Fifth Third Bancorp (FITB) : Free Stock Analysis Report
Bank of America Corporation (BAC) : Free Stock Analysis Report
Wells Fargo & Company (WFC) : Free Stock Analysis Report
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
U.S. Bancorp (USB) : Free Stock Analysis Report
Civista Bancshares, Inc. (CIVB) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.A) : Free Stock Analysis Report
Chemung Financial Corp (CHMG) : Free Stock Analysis Report
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