Banking, finance, and taxes
Oppenheimer Picks Five Top Bank Stocks to Buy for Rising Interest Rates
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While the talking heads in the financial media argue back and forth about economic strategy on interest rates, there are two inescapable facts. First, interest rates had been at all-time lows for almost five years. Second, as everybody thinking about buying a house knows, interest rates have gone up dramatically since May. We have written about how the bond market is an anticipatory device, and when leveraged debt traders get a whiff of economic growth, they head for the hills long before the actual rate increases.
The banking analysts at Oppenheimer took an in depth look at the top banks and financial stocks to evaluate which would feel the greatest effect from the rise in interest rates. Their conclusion is that the early phases of the rate cycle will be positive for bank stocks, but the later phases become increasingly risky. So they carefully screened for names that can still thrive. Here are the five top stocks to buy.
Capital One Financial Corp. (NYSE: COF) has become famous for its hilarious commercials featuring actor Alec Baldwin. The bank also is slowly but surely becoming one of the top credit card companies. The stock ranks as one of the top holdings in billionaire Andreas Halvorsen’s Viking Global hedge fund, which now owns 15 million shares. Oppenheimer has a $78 price target on the stock. The Thomson/First Call price target is $75. Investors are paid a 1.8% dividend.
Citigroup Inc. (NYSE: C) has a very wide global footprint that helps to offset its U.S. exposure. It also benefits from a huge money transfer business that generates large revenues for the firm regardless of interest rate moves. The Oppenheimer price target for this top financial name is $62. The consensus objective is lower at $60. Investors are paid a minuscule 0.1% dividend.
CIT Group Inc. (NYSE: CIT) operates as the holding company for CIT bank, which provides commercial financing and leasing products, as well as deposit products and savings accounts. The company operates through five segments: Corporate Finance, Transportation Finance, Trade Finance, Vendor Finance, and Consumer. The Oppenheimer target for the stock was not listed in the report. The consensus target for the stock is $54.25.
Discover Financial Services Inc. (NYSE: DFS) is another play where investors are positive about the credit card business. We recently wrote about credit card companies having success with their customers. Oppenheimer has a $57 price target for the stock, the same as the consensus target. Shareholders are paid a 1.6% dividend.
J.P. Morgan Chase & Co. (NYSE: JPM) has had a very difficult year from a publicity, trading and regulation standpoint. However, the firm boasts one of Wall Street’s top balance sheets and earnings continue to grow. The purchase of Bear Stearns during the height of the economic collapse in 2009 has added to the bank’s strong performance. Oppenheimer has a $71 price target, the highest on Wall Street, and the consensus target is $63. A move to the Oppenheimer target would represent a gain of over 30% for shareholders. Investors are paid a 2.9% dividend.
Rates rising are a question of when, not if, and everybody knows it. The fact that it is inevitable is really a positive for investors. The tapering and eventual ending of the Federal Reserve’s quantitative easing (QE) eventually will lead to the federal funds rate being raised at some point next year. The bond market knows this and will continue to price it in to rates long before they are actually higher.
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