When the market blew up during the great financial crisis of 2007–2009, the banks and brokerage stocks were ostensibly part of the reason for the collapse as they had aided and abetted the mortgage crisis. Two major brokerage firms went out of business, and Merrill Lynch was bought at the last moment by Bank of America before it also plunged into the abyss of bankruptcy.

Fortunately, lessons were learned then, and the major banks are in much better shape these days. While net interest income will drop with rates still at historically low levels, and loan growth will slow with the economy still operating at a reduced level, the future is still bright for the top players in the sector. Many are still trading at near-record-low levels compared to their S&P 500 counterparts.
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The BofA Securities team noted that, at a recent financial conference, management commentary was relatively optimistic, and they said this in a recent research report:

The removal of the election overhang also helped bank stock performance, as the likelihood of a split Congress suggests no meaningful shift in tax and regulatory policy. On the back this, we’ve observed modest steepening in the yield curve (10-year UST up ~30 basis points since 9/30). Bank management commentary also shed light on: customers turning more “offensive”; COVID-impacted fee businesses showing signs of improvement (returning to pre-pandemic levels in some cases); and management teams focused on keeping expenses under control.

While the bank stocks as a group are up a solid 22% this quarter, most of those gains have come recently off long-time lows, giving investors who have been waiting to buy the group ample time to jump in. We screened the BofA Securities bank universe looking for stocks rated Buy that pay dividends and for which the analysts are raising price targets.

All four look tempting now, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Citigroup

This leading money center giant has been trading at some of the lowest levels since 2016. 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 7.7 times estimated 2021 earnings, Citigroup stock looks very reasonable in what remains a volatile market and in a sector that has lagged dramatically.

The Federal Reserve Board earlier this fall announced an enforcement action against Citigroup that requires it to correct several longstanding deficiencies. The bank has been slapped with a $400 million penalty by the Office of the Comptroller of the Currency for longstanding deficiencies in its risk management and internal controls processes. Both the OCC and the Federal Reserve have accused the bank of failing to implement effective risk and internal controls measures that complement its size, complexity and risk profile.

While this action may seem harsh, for interested investors who have been waiting for the judgment, it should take some weight off the stock as it does not seem overly punitive to the bank.

Citigroup investors receive a 4.17% dividend. BofA Securities raised the price target to $79 from $70. The Wall Street consensus price objective is $62.16. Citigroup stock closed trading Wednesday at $48.93.

Fifth Third Bancorp

This top super-regional bank stock remains incredibly cheap right now. Fifth Third Bancorp (NASDAQ: FITB) is a diversified financial services company and the indirect parent company of Fifth Third Bank, an Ohio-chartered bank. As of April 14, 2020, the company operated 1,149 banking centers and 2,481 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina.

Fifth Third is among the largest money managers in the Midwest. As of September 30, 2020, it had $422 billion in assets under care, of which it managed $53 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses.

Shareholders receive a 4.20% dividend. The $28 BofA Securities price target was raised to $32, while the consensus target is $26.30. Fifth Third Bancorp stock was last seen trading at $25.72.
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PNC Financial Services

This top regional bank is perhaps one of the best banking plays now. PNC Financial Services Group Inc. (NYSE: PNC) is one of the largest U.S. diversified financial services organizations and the seventh-largest U.S. bank by deposits, with $410 billion in assets.

PNC 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.

Shareholders receive a 3.67% dividend. The BofA Securities price target was raised from $136 to $150, and the consensus is set substantially lower at $122.53 PNC Financial Services stock closed at $125.44 on Wednesday.

Truist Financial

This seemingly off-the-radar company makes great sense for investors looking for a solid regional winner. Truist Financial Corp. (NYSE: TFC) is a bank holding company, incorporated in North Carolina and headquartered in Charlotte. The company was formerly known as BB&T, but it changed its name in December 2019 upon the acquisition of SunTrust Banks.

The complete transition to the Truist brand is expected to take about two years. Until then, customers of both BB&T and SunTrust will be served through their respective bank branches using the same apps, websites and services as before the merger closed. As part of the regulatory approval process, the new company will sell off 30 SunTrust branches in North Carolina, Virginia and Georgia to First Horizon Bank and divest $2.4 billion in deposits to “mitigate the competitive effects of the merger,” according to the Federal Reserve.

Truist’s footprint is located in one of the strongest and fastest-growing regions of the United States, and the analysts expect the company to maintain a competitive advantage over many of its competitors headquartered outside its footprint due to its being physically located in the southeast part of the country.

Investors receive a 3.70% dividend. BofA Securities has raised the price target from $50 to $57. The consensus figure is $46.37, and Truist Financial stock closed at $48.82.

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Four top U.S. bank stocks are still incredibly cheap on a historical basis, come with dividends that should remain intact and offer investors with a long-term time frame tremendous opportunity. Given the market’s recent rally, and the jump in the banking sector, it may make sense to buy partial positions now and see how the rest of what could be a volatile end of the year plays out.

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