3 big bank stocks to consider today

Earnings were mixed for the big bank stocks, but that could mask opportunity.

  • By Aaron Levitt,
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For the major and regional bank stocks, this quarter so far was truly a mixed bag. Digging into their numbers, it really was a two-sided coin.

One the one hand, we had several banks win on a variety of fronts, while many others suffered under the weight of lower trading revenues. And with the Fed starting to cut rates, it’s certainly a difficult environment to select just which bank stocks have the goods to keep it going.

But investors do have some incentive to do just that.

For one thing, dividend growth among the bank stocks has been top-notch. Over the last few years, as the economy has become stable, the major bank stocks have become very well-capitalized. That has allowed the Fed to approve shareholder reward programs. Dividends have returned to pre-recession yields and buyback activity remains swift. Meanwhile, the bank stocks are bargain-basement cheap — with the Financial Select Sector SPDR Fund (XLF) currently going for just a P/E of 12.

With that, it makes sense to take a look at big bank stocks for your portfolio. We just have to be a bit selective in which firms we choose. Under that lens, here are three big bank stocks worthy of buying today.

Bank of America

Bank of America (BAC) is a prime example of how the mixed earnings picture was for major bank stocks this quarter. On the surface, BAC’s reported earnings were disappointing, especially when compared to many of its rivals. The firm just barely beat profit estimates and only matched what analysts had hoped for in terms of revenues.

However, BAC actually won the quarter when it comes to the bank stocks. For starters, the firm’s efficiency ratio and return on assets for the quarter were stellar. In fact, comparing Bank of America to other top banks, it was the most profitable of its peer group.

The reason comes down to its consumer and wealth management divisions. BAC continues to see some real growth among consumer clients. Deposits jumped more than 6% on the quarter, and the bank continues to see robust loan growth. Again, both fronts were better than many of its rivals. Moreover, its hefty spending on digital and fintech apps and additions are starting to pay off with consumer clients.

Then there is the “Thundering Herd” to consider. BAC’s Merrill Lynch is also paying some serious dividends to the bank’s bottom line. Merrill brought in more than $11 billion in revenues — a gain of 11% year-over-year — as cross-selling and new client relationships surged.

The point is, BAC is seeing real growth in several key areas. And the firm is sharing that growth with its shareholders. Thanks to these improved results, Bank of America was recently able to up its dividend by a whopping 20%.

With a 2.34% yield, BAC stock could be one of the best bank stocks to buy on the recent quarter.

U.S. Bank

When it comes to the big banks, U.S. Bank (USB) gets lost in the shuffle. The reason comes down to the firm’s consistency. USB is boring. There’s no “Vampire Squid”-styled dealings like Goldman Sachs (GS) or rock-star CEO like J.P. Morgan (JPM). The firm has largely avoided riskier portions of the banking sector such as mezzanine debt or property trading. It just churns out steady deposit and loan growth.

And it did so again this quarter — beating estimates on both revenues and net income. Meanwhile, unlike many of the banks reporting this quarter, U.S. Bank didn’t feel such huge pressures to its critical net interest margins. The bank saw the spread between what it pays for deposits and what it can get for loans increased in both quarter-over-quarter and year-over-year numbers. Not many banks can say that. USB’s boring focus is clearly paying benefits.

But here’s the thing: USB isn’t actually boring. The firm is quickly becoming a fintech leader. U.S. Bank has looked towards apps, payments and other tech-driven assets to boost its revenues and profits. That includes closing branches but expanding into new areas via digital banking as well as online loan origination. Its new digital loan platform is seen as a huge win for the bank.

All in all, USB could be a perfect stock to buy. You get the perfect blend of traditional “boring” banking mixed with a growing fintech portfolio. That’s exactly what investors should want when it comes to the bank stocks.

Bank of New York Mellon

A 9% drop could be a great opportunity to snag shares of one of the better bank stocks out there. Like many firms in the sector, the Bank of New York Mellon (BK) was hit hard on its latest quarter. The culprit? Falling net interest margins. Investors didn’t like what they saw and sold BK shares hard.

However, that drop may not be justified. It’s still a stock to buy.

The thing is, BK isn’t like your normal bank. It doesn’t serve you or me. We can’t just go into a branch and open a checking account. The Bank of New York (BNY) is what’s called a custodian bank. Other banks, corporations, asset managers and high-net-worth individuals use BNY to execute and process trades, service investments, safe-keep assets and provide liquidity and credit services. By nature, its net interest margins are never as good as Bank of America or other banks.

And on that front, the bank did manage to deliver. It’s Pershing brokerage services division saw a 1% jump in revenues, while clearance and collateral division saw a big 6% jump in quarter-over-quarter revenues. At the end of the day, the Bank of New York managed to see a big 7% jump in quarter-over-quarter in earnings per share.

With BK still delivering on what it does best, now could be a great time for investors to use the drop and load up on the top-notch bank. They’ll collect an ever-growing dividend while they wait.

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