As we have noted many times, one of the few sectors where companies applaud higher interest rates is the financials. Interest rates and bank profitability are connected. When interest rates are higher, banks make more money by taking advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing and writing loans.
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The stock market was on pins and needles for a while earlier this year as interest rates edged higher. While a huge increase would be dangerous for some sectors, the reality is the Federal Reserve probably will not raise interest rates for another year or even two. Plus, with the benchmark 10-year Treasury yield drifting back to 1.65%, and finally higher than the S&P 500 yield for the first time in months, it is nothing compared to the 5% yield in 2007.

The bottom line for investors is that it is likely the top large-cap financials will post some solid numbers. So, we screened our 24/7 Wall Street research database looking for money-center banks that are rated Buy and could post some solid results later this week. Four look very attractive and can be bought in front of the reports.

Bank of America

The company posted solid fourth-quarter results and may be set to repeat when it reports Thursday before the open. Bank of America Corp. (NYSE: BAC) 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 and online and mobile banking platforms.

The bank has expanded into a number of new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.

Bank of America stock investors receive a 1.80% dividend. Barclays has a Buy rating and recently raised the price target to $45 from $40. The $39.98 Wall Street consensus target is in line with Friday’s closing at $39.99.

Citigroup

This top bank stock has rallied nicely but looks poised to move even higher for the rest of 2021, and it is expected to report early Thursday. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations, governments a broad range of financial products and services.

Citigroup offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. It operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.

Trading at a still very cheap 9.9 times estimated 2021 earnings, this stock looks very reasonable in what remains a volatile stock market and in a sector that has lagged dramatically.

Investors receive a 2.82% dividend. Jefferies has a Buy rating and raised the price target recently to $85 from $75, while the consensus target is $83.75. Citigroup stock closed Friday at $72.42.

This stock trades at a still reasonable 14.5 times estimated 2021 earnings, and the quarterly report is due first thing Wednesday. 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 was formed through the merger of retail bank Chase Manhattan and investment bank J.P. Morgan.
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The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.

Top analysts feel that this industry titan faces a broad recovery in nearly every aspect:

1. Leading M&A advisory and capital markets product set and market share
2. Massive footprint of corporate and commercial banking customers
3. Sizable wholesale payments businesses

The company has proven that it has the wherewithal to invest continually in people, products and platforms to further its market share base, extending its competitive advantage compared with most of its peers.

Investors receive a 2.30% dividend. The Barclays Overweight rating comes with a street-high $187 price target. The consensus target is $160.97, and JPMorgan stock closed at $156.28 on Friday.

Wells Fargo

This large-cap bank is perhaps the best solid value play for 2021, and it also will report Wednesday before the market opens. 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.

Bloomberg reported in February that the Federal Reserve had privately signaled that it accepted the bank’s proposal for overhauling risk management and governance. The next steps to remove the asset cap include the completion of a third-party review and a full Fed board vote to lift the sanction. Top analysts feel that to reach a 15% return on average tangible common shareholders’ equity (the long-term target), the company will have to grow revenue by $8.5 billion to $10.4 billion.

Shareholders receive a 1.00% dividend. Morgan Stanley’s Overweight rating comes with a street-high $47 price target, above the $43.22 consensus target. Wells Fargo stock closed at $40.50.

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The four top money center banks in America all make sense for growth stock investors looking for a dividend kicker to add the potential for solid 2021 total return. With earnings set to come in just a few days, growth stock investors with a little higher risk appetite may want to buy some shares in front of the reports.

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