Oppenheimer Lifts Financials to Overweight: 4 Large Cap Leaders to Buy

By Lee Jackson Published Aug 13, 8:25AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

We have warned of a downturn in the markets for most of the summer, and with the Chinese currency devaluation catching most by surprise, a good-sized sell-off could still be in the offing, even if Thursday brings a respite. The good news is that bear markets usually begin when the economy dives into recession. Although it is tepid, the U.S. economy is chugging along.

One area that remains very cheap on a price-to-earnings basis is the financials, and in a new research report Oppenheimer upgrades the sector to Overweight. While bond yields have rolled back over from the Chinese devaluation and global macro fall-out, the Federal Reserve could be poised to raise rates in September, and that will start them on their way higher again. Other firms also see the value in the bank stocks, and recently the analyst at Barclays was positive on earnings and other key metrics.

We screened the large cap financials in the S&P 500 and found four top companies trading under 12 times forward earnings. In a jittery market they make good sense now.

Bank of America

This stock seems to have been in the penalty box the longest and may offer investors a good entry point, trading at a low 11.7 times forward earnings. Bank of America Corp. (NYSE: BAC) reported solid second-quarter earnings that were driven by lower expenses and absence of substantial legal costs, which had strangled the bank for years. Some analysts think $2 per share earnings is not out of the question for the money center giant next year. Total 2015 earnings estimates are expected up 284% from last year.

The company is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers, online and mobile banking platforms.

ALSO READ: 5 US Stocks With Incredibly High Revenue Exposure to China

Many on Wall Street see it as the purest play on U.S. growth and rates among the bank’s peers, especially with most of the legal issues in the rear-view mirror. We recently covered several big banks that are trading below book value, another measure of just how cheap the sector is now.

Bank of America investors are paid a 1.16% dividend. The Thomson/First Call consensus price target for the stock is $19.26. Shares closed Wednesday at $17.52.
Citigroup

The stock may offer investors outstanding upside, and recent currency settlements were fully reserved for by the bank. Citigroup Inc. (NYSE: C) is very cheap, trading at just 10.1 times forward earnings estimates. The nation’s fourth-largest bank by assets also delivered solid second quarter-earnings. Shares have dropped sharply from the highs printed late in July and look like a compelling buy here, especially with a dividend increase in the mix.

Numerous Wall Street analysts cite that Citigroup will be a leader in buyback payouts to shareholders. Combined with the bank’s strong domestic and international business, and a better overall economy, plus the headline risk over bank stress tests and other legal issues removed, share purchases look wise here.

Citigroup shareholders are paid a miniscule 0.36% dividend. The consensus price objective is $65.96. Shares closed Wednesday at $56.91.

Goldman Sachs

This company continues to be the gold standard of Wall Street banks and trades at a low 10.8 times estimated forward earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise, and the firm continues to be a dominant force around the world. The bank is one of the most sought after in the world, and it is one of the very few firms that dictate who can be a client.

ALSO READ: UBS Makes Big Changes to Quality Growth at a Reasonable Price Portfolio

In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1 trillion of announced transactions last year, the highest level since 2007. It also has maintained a leading market share over the past 25 years, and a market position when M&A activity was dominated by technology in 1999, by financials in 2008 and by natural resources in 2014. The bottom line: regardless of where market strength is in any given year, Goldman Sachs is up to the task.

Goldman Sachs shareholders are paid a 1.31% dividend. The consensus price target is $219.86, and shares closed Wednesday at $201.13.

JPMorgan

This stock trades at a very low 11.1 times estimated forward earnings. JPMorgan Chase & Co. (NYSE: JPM) is expected to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on 2015 estimated price-to-earnings and a very solid price-to-book value. Some on Wall Street have cautioned that last year’s divestiture of the physical commodities business could provide an earnings headwind throughout this year, but so far that does not seem to be the case.

Improvement in loan growth, terrific equity capital markets and a steady increase in deposits have been a solid plus. Trading at a discount to many of the large cap banks on 2015 earnings estimates also helps upside potential. With $2.6 trillion in assets worldwide, and one of Wall Street’s savviest leaders in Jamie Dimon, the stock is a solid buy.

JPMorgan investors are paid a 2.65% dividend. The consensus price target is $74.88. Shares closed on Wednesday at $67.24.

ALSO READ: 4 High-Flying Stocks That Have Sold Off Far Too Much

Given the market uneasiness, now is the time to stick with the large cap leaders. All these stocks make good sense for growth portfolios, and all have come in nicely from 52-week highs, which presents investors with solid entry points.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.