After already having been on a roll since the president was elected in November of 2016, some changes to current regulations could even make the tailwinds behind the financial sector a little stronger in 2018. In fact, recent news reports suggest that the Federal Reserve and the Office of the Comptroller of the Currency may propose lowering the overall supplementary leverage ratio as early as this week. Such a move could be huge for the top banks and brokerage firms.

A new Merrill Lynch research report estimates that lowering the requirements could result in a stunning $86 billion in excess capital. The analysts remain positive on three top money center banks and two industry-leading brokerage firms, and all are rated Buy at Merrill Lynch.

Citigroup

This top bank has broken out of a long trading range and could push even higher. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 10 times estimated 2018 earnings, the bank looks very reasonable in what has become a pricey stock market. A continuing stock buyback program is a big positive.

Merrill Lynch noted that the bank reported a “clean” fourth-quarter earnings per share that were better than expected. Revenues beat as well in the Institutional Clients Group and Global Consumer Banking. Trading was also better than feared. Feedback indicated more negative positioning into the quarter, which could drive stock higher.

Citigroup investors are paid a 1.6% dividend. The Merrill Lynch price target for the stock is $84. The Wall Street consensus price objective is $83.41. The stock closed Friday’s trading at 80.08 a share.

Goldman Sachs

This company continues to be the gold standard of Wall Street banks and trades at a very reasonable 11.6 times Merrill Lynch’s estimated 2018 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.

Goldman Sachs, which is on the Merrill Lynch US 1 list, posted fourth-quarter results that beat analyst expectations. 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.

Goldman Sachs shareholders are paid a 1.11% dividend. Merrill Lynch has a $300 price objective, and the posted consensus price target is $266.76. The shares closed on Friday at $268.14 apiece.

JPMorgan

This stock trades at a very reasonable 11.82 times estimated 2019 earnings and could respond well in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms, and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today formed through the merger of retail bank Chase Manhattan and investment bank JPMorgan.

The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services. Earnings were outstanding and the analyst said this in the report:

Fourth quarter results support why the company is among the best owned financial stocks. Earnings growth is strong versus peers and the company continues to gain share. We have long talked about JP Morgans “coiled spring” of EPS power. We think the backdrop in 2018 and 2019 will unleash it. We expect Investor Day (2/27) to be the next positive catalyst for the stock.

JPMorgan investors are paid a 1.95% dividend. The $119 Merrill Lynch price target compares with the consensus target last seen at $117.86. The shares traded at $116.32 on Friday’s close.

Morgan Stanley

This bank has posted outstanding quarterly results and may be among the best buys in the banking and investment arena. Morgan Stanley (NYSE: MS) is a global investment bank with leading positions in investment banking (M&A and equity underwriting), equity trading and wealth management, which contributes nearly 50% of firmwide revenues. The firm also has an asset management business, which adds to the lower-risk business profile the firm has pursued since the financial crisis.

The company fourth-quarter results that beat analyst expectations on the top and bottom lines, excluding a charge related to the tax bill, as strong results in wealth management offset a big drop in fixed income trading revenue.

Morgan Stanley investors are paid a 1.75% dividend. Merrill Lynch raised its price target to $63. The consensus price objective is $59.96, and the shares closed trading most recently at $57.60.

Wells Fargo

This large-cap bank is a solid value play for 2018. 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.

While earnings beat analysts’ estimates for the fourth quarter, revenue, net interest income and net interest margins all fell short of expectations. Wells Fargo management emphasizes that 2018 should be a different story. With positive industry catalysts and several initiatives designed to restore consumer confidence in the bank, it’s indeed possible that 2018 could be a much better year for the bank.

Wells Fargo shareholders receive a 2.38% dividend. The Merrill Lynch price target is $70. The consensus target is $66.16, and the stock closed Friday at $65.93 a share.

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These five top financials to buy are still offering investors a reasonable valuation and some solid upside potential. With earnings out of the way for the quarter, investors may want to add partial positions here and see if we don’t get a pullback when the earnings season concludes.

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