Main Street to Wall Street: 10 Ways to Bank on Banking

Bank stocks have been generally out-of-favor in recent years as investors have focused on more momentum and growth-oriented names. However, several leading experts, and contributors to MoneyShow.com, see increasing value in the sector. Here, they highlight a diverse group of picks ranging from Main Street community bankers to Wall Street's top investment giants. Steve Biggar, Argus Research BlackRock provides investment management, risk management, and advisory services for institutional and retail clients worldwide. Its iShares franchise has allowed the company to dominate the ETF market, with strong organic growth in the U.S. and Europe over the past year. BlackRock sees the global ETF market increasing from $8 trillion in assets in 2020 to $15 trillion by 2025. On April 13, BlackRock reported first-quarter 2022 adjusted earnings of $9.35 per share, up from $7.77 a year earlier and above the consensus of $8.84. Revenue rose 7% to $4.7 billion, led by growth in investment advisory and distribution fees. Total AUM at March 31, 2022 rose 6% from the prior year to $9.57 trillion. On valuation, we believe that BLK shares should trade at a premium to large-cap financial stocks given the company's above-average operating margins, stable long-term asset inflows, and history of product innovation. In our view, BLK should trade at a premium to peers. Our target price of $975 assumes a multiple of 21-times our 2023 EPS estimate, a historical premium that we believe is merited by the company's high operating margins. We are maintaining our buy rating on BlackRock. We believe that State Street Corp. is doing a good job managing the shift from active to passive money management, which has created fee pressure and increased competition. In a challenging revenue environment, the company is working to control costs. Over the long term, we expect the company to benefit from industry consolidation that favors the most efficient players. First-quarter 2022 results showed growth in most fee-based revenue categories as well as in net interest income. The latter should remain a strong tailwind in 2022 as the Fed raises interest rates. State Street will add $5.4 trillion in assets under custody through the forthcoming acquisition of Brown Brothers Harriman Investor Services. STT has historically traded at a premium to the S&P 500, but now trades at just 10-times our 2022 EPS estimate. We believe that recent weakness provides a favorable entry point for the high-quality STT shares, which yield about 3.0%. We believe that stronger revenue growth and continued solid cost controls will lead to positive operating leverage over the next year. We are raising our rating to buy with a target price of $93. Adam Johnson, Bullseye Brief SoFi Technologies, Inc. is the best managed neo-bank targeting Millennials and GenX borrowers with strong credit and rising financial needs. It provides a complete suite of financial services on a single app, including cash management, checking, savings, trading, credit cards, loans, loan refinancing and investment advice. SoFi's 2.5M customers are predominantly Millennials and Gen Xers with strong credit, who consider themselves digitally native and seek complete control of their finances from a trusted mobile device. Critically, these aspirational consumers rely on SoFi for multiple products, creating a powerful flywheel effect which drives margin expansion and top line growth. Sofi also operates a third-party payments and processing platform called Galileo, licensing its software to other online banks in much the same way Amazon Web Services facilitates digital commerce for other retailers. Anticipated revenues of $1.5B this year represent 50% growth and the company will likely become profitable this year or next, aided by its recently approved application to fund itself as a deposit-taking bank. Management is highly pedigreed and appears to have the goodwill of Wall Street, a noted positive for a newly public company. Faris Sleem, The Bowser Report Siebert Financial -- our latest stock of the month -- engages in the retail discount brokerage and investment advisory businesses. It offers discount brokerage services, market making services, retail execution services, a robo-advisor platform and a data technology platform for market data, serving customers through 18 branch offices. The company has been a member of the New York Stock Exchange since 1967 and its late founder, Muriel Siebert, was the first woman to become a member of the NYSE. In 2016, the company came under new ownership in order to modernize its services and build upon its substantial client base. Siebert Financial reported a strong revenue performance in 2021 and is quickly transforming into a growth stock. Despite this growth, SIEB's share price has been cut in half since 2018 and the stock is trading near its four-year low. The company's value has been increasing steadily and with its low share count, a continued rise in EPS will skyrocket its underlying value. Both its Price/Book and Price/Sales Ratio are roughly half of the industry average, representing a severe undervaluation. This makes SIEB a potential buyout candidate because of its consistently positive cash flows and simple business model. We believe $1.75-2.10 to be the ideal range for long-term entry for value investors. Chuck Carlson, DRIP Investor Regions Financial just announced it plans to buy back up to $2.5 billion worth of stock through 2024. The buyback equates to repurchasing roughly 12% of the company's outstanding shares at current prices -- a hefty buyback. It's worth mentioning that Regions Financial is not using all its spare cash for buybacks. Indeed, the firm pays a quarterly dividend of $0.17 per share, which equates to a 3.2% dividend yield. The company's meaningful buyback and cash dividend programs reflect a confidence in the firm's future. Earnings estimates for 2022 and 2023 have risen over the last 60 days. And the increase in interest rates should help the company's net interest margins. Regions stock is trading at an 18% discount to its 52-week high of more than $25 per share. Banking stocks have been roughed up due to concerns of an economic recession. However, Regions' buyback and dividend yield should provide some downside support, and I think these shares have a good chance of returning to the mid-$20s this year. Please note Regions offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Bruce Kaser, Cabot Undervalued Stocks Advisor Citigroup is one of the world's largest banks, with over $2.4 trillion in assets. The bank recently reported earnings of $2.02/share that fell 44% from a year ago but were 45% above the consensus estimate. The bank trades at only 67% of its tangible book value of $79.03/share. Citi's peers trade at between 130% and 200% of tangible book value. As the bank makes more progress with its strategic overhaul -- a grinding process for sure -- the share valuation should converge with its peers, providing exceptional upside with what appears to be limited downside. As long as the bank can execute its turnaround, the shares remain highly discounted. Investors have largely lost patience with Citibank. We are holding tight to the shares as our confidence remains sturdy and the shares remain overly discounted on a price/book basis as well as on an earnings basis. Citigroup investors enjoy a 3.9% dividend yield and perhaps another 3% or more in annual accretion from the bank's share repurchase program. I rate the stock a buy. Doug Gerlach, SmallCap Informer With interest rates set to rise in 2022, small regional banks could see big gains in profitability. Unlike national banks that rely on extensive fees paid by customers to boost earnings, community banks must focus on the business of banking -- in effect, buying and selling money. Their reputation and connection to the communities they serve are invaluable assets. Summit Financial Group has the right combination of very good operational efficiencies and quality of loans. It serves commercial and individual clients throughout West Virginia, the Washington, D.C. metropolitan area, Virginia, and Kentucky through 45 full-service branch locations. Summit opened or acquired 13 banks, branches, and drive-ups in 2020 and 2021. As it expands its geographic reach, it will find new opportunities, while simultaneously increasing its footprint in its core markets. Though we are not banking on the possibility, Summit Financial -- with its solid balance sheet and deposit base -- could be an acquisition target of a larger regional bank. We project future earnings and revenues growth of 9.0% a year. This modest expectation should be readily achievable. The current P/E is 7.4. We believe that Summit can support a P/E as high as 11. If the company earns $5.34 by 2026, the high price could reach $59. On the downside, if the stock were to fall to a low P/E of 6, a future low price of $21 would be indicated. The upside/downside ratio to our future high and low prices is 6.9-to-1. Overall, a 20.2% annual return is possible. John Buckingham, The Prudent Speculator First-quarter financial results came in shy of analyst expectations at JPMorgan Chase . Nevertheless, JPM remains a favored holding in many of our diversified portfolios, and management was upbeat regarding loan demand for the year ahead, even as several previously noted risks sit on the horizon. We continue to like the multiple levers available to generate fee revenue in varying environments, and we maintain our fondness for CEO Jamie Dimon, who is willing to take a long-term view, spending on enhancing various capabilities, even if there is limited near-term payoff. The shares trade for less than 11 times the consensus EPS estimate for FY 2022 (nearly 60% of the market multiple) and the dividend yield is 3.2%. Our Target Price for JPM is presently $184. Goldman Sachs earned $10.76 per share in the first quarter, well below the $18.60 in the year-ago period, but roughly even with the fourth quarter. Following the 7% overshoot last quarter, Street analysts went with the under this go-round as estimates were some 20% below the actual print. The shares have shed nearly a quarter of their value since the 52-week high was set last November. With Goldman earning over 15% on tangible equity, we find the stock cheap, trading for a single-digit multiple of the consensus 2022 EPS estimate and just above tangible book per share. And even though projections have fallen somewhat in recent months, we wouldn't rule out $40 of EPS for 2022, which would make the stock even more attractive. We continue to like the healthy balance sheet and ongoing sound strategic repositioning. The build-out of its traditional banking and investment management businesses should serve shareholders well in the long run as management attempts to evolve the trading and deal-making titan into a more well-rounded financial firm with more stable consumer and commercial businesses. The dividend yield is 2.5% and our Target Price is now $462. Morgan Stanley posted first-quarter EPS of $2.06, a 7% decline from the same period a year ago, but more than 50% higher than the pre-pandemic number. Fed by market volatility, the trading department led the way in the quarter, earning over $6 billion. Wealth management income bounced back from Q4 despite a pullback in equities and fixed income. We continue to like the diversifying acquisitions of Eaton Vance and E*Trade, which we believe give MS greater scale in tech, a deeper product and service base, and self-directed investors to complement advisor-assisted wealth-management clients. In the near term, we think capital market activities will resume throughout the year, while MS is likely to benefit from higher rates in a meaningful way and we see the opportunity for the firm to take larger wallet share in wealth management. Shares trade for 11 times EPS estimates and offer a dividend yield of 3.3%. Our Target Price remains $120.

Main Street to Wall Street: 10 Ways to Bank on Banking

Leading investment experts see increasing value in the sector. Here are their picks.

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