What a run it has been. While many investors are still thinking about owning bank stocks, the reality is they are extended, like many stocks and may be risky to buy at current levels. While the fundamentals that drove the rally, which include interest rates trending higher and the hope for a reduction in the corporate tax rate, remain in place, the bottom line is most of the stocks have run way too far too fast.

In a new research report, Deutsche Bank, also feels that the interest rate increases and an improving economy are positive factors, and the firm notes improved loan growth and better fee revenues should come as a result of the growth. The analysts also see the potential for a solid pickup in share buyback and dividend growth.

Given the big run in the stocks, the analysts look to be favoring companies that also have a strong capital markets business. We found five that are still rated Buy.

Goldman Sachs

This continues to be the gold standard of Wall Street banks and trades at a reasonable 13 times estimated 2017 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. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.

In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1.5 trillion of announced mergers and acquisitions transactions last year, the highest level the bank has ever recorded. It also has maintained a leading market share over the past 25 years. It maintained a market position when merger and acquisition activity was dominated by technology in 1999, by financials in 2008 and by natural resources in 2014. The bottom line is, regardless of where market strength is in any given year, Goldman Sachs is up to the task.

Goldman Sachs reported third-quarter numbers that hammered analysts’ estimates. And an improving capital market bodes well for a firm that is a leader in the IPO world.

Goldman Sachs shareholders receive a 1.08% dividend. The Deutsche Bank price target for the stock is $255, and the Wall Street consensus target is $219.58. Shares closed Wednesday at $239.93.

JPMorgan

This stock trades at a reasonable 13.2 times estimated 2017 forward earnings and could respond well in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is expected to continue to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on 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 earnings headwinds going forward.

The company reported outstanding third-quarter results, and Merrill Lynch thinks the results are sustainable going forward. The firm raised its estimates for 2017 and feels JPMorgan can earn as much as $7 a share by 2018. Despite being a crowded trade, Merrill Lynch also feels that the bank’s superior earnings growth should continue the stock’s outperformance.

Improvement in loan growth, terrific equity capital markets and a steady increase in deposits will be a solid plus. Trading at a discount to many of the large cap banks on 2016 earnings estimates helps upside potential as well. With $2.6 trillion in assets on a worldwide basis, and one of Wall Street’s savviest leaders in Jamie Dimon, the stock is a solid buy for investors.

Earlier this year, Dimon put his money where his mouth was and reportedly bought a stunning 500,000 shares of JPMorgan stock for a massive $26 million. That brought his total holdings in the bank to 6.7 million shares, worth over $360 million.

Investors receive a 2.27% dividend. Deutsche Bank has a $90 price target, and the consensus target is $80.45. Shares closed yesterday at $84.73.

PNC Financial Services

This top regional bank recently was added to the Merrill Lynch US 1 list and offers investors a solid entry point. The PNC Financial Services Group Inc. (NYSE: PNC) is one of the country’s largest diversified financial services organizations. It provides retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; and wealth management and asset management. With consistent earnings growth and a very positive and growing loan portfolio, the company is a premiere super-regional bank stock to own.

Wall Street analysts point to numerous positives, including the bank implementing huge cost savings plans, and the fact the bank is working on up to $100 million of new savings announced earlier this year. The bank is also applauded for outstanding credit/risk management. While it has a more limited exposure to the capital markets related areas, the focus on traditional banking is better for more conservative accounts.

Shareholders receive a 1.92% dividend. The $120 Deutsche Bank price target compares with the consensus target of $109.93. Shares closed Wednesday at 114.20.

Sun Trust Banks

This top regional has made big strides in traditional banking and with its broker-dealer side, and it is another top regional to consider. SunTrust Banks Inc. (NYSE: STI) operates as the holding company for SunTrust Bank, which provides various financial services for consumers, businesses, corporations and institutions in the United States.

The company was recently selected by the U.S. Treasury Department’s Community Development Financial Institutions Fund to receive $80 million in tax credit allocation authority in the 2015-2016 round of the New Markets Tax Credit (NMTC) Program. The company’s subsidiary, SunTrust Community Development Enterprises, was one of 120 recipients receiving awards totaling $7 billion. This is the eighth time SunTrust has been selected as a recipient, with awards totaling $508 million in allocation authority.

Shareholders receive a 1.9% dividend. The Deutsche Bank price objective is $58. The consensus target is $53.21. The stock closed at $55.13.

Wells Fargo

This large cap bank is another stock for investors to look at now for safety, dividends and solid upside potential. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding, and he raised his holdings in the bank to 10% on the stock’s weakness earlier this year.

The company reported inline third-quarter results and earnings revisions, which didn’t go over well after the other major banks posted big earnings. Wells Fargo also had a recent public relations headache as it was revealed that employees allegedly opened up client accounts that were not approved. Things got worse recently as its CEO was absolutely eviscerated at a congressional hearing by politicians in an election year, and he has resigned under pressure. While the stock has rallied off the lows, it is still probably the most affordable of all the major money center banks.

Shareholders receive a 2.78% dividend. The $60 Deutsche Bank price target compares with the consensus target of $54.10 and Wednesday’s closing share price of $54.70.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Given the huge rally since the election of Donald Trump, investors may want to take partial positions here and see if we don’t get some selling in the last week of December or in early January.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.