As we have noted often, one of the few sectors where companies applaud higher interest rates is the financials. Interest rates and bank profitability are connected, with banks benefiting from higher rates. When interest rates are higher, banks can make more money by taking advantage of the difference between the interest that banks pay to customers and the interest the bank can earn by investing and writing loans.
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The stock market has been on pins and needles recently, as interest rates have surged higher. While a huge increase would be dangerous for some sectors, the reality is that the Federal Reserve probably will not raise interest rates for another year or perhaps longer. Plus, with the benchmark 10-year Treasury trading up to a 1.61% handle, and the 30-year long bond at 2.16%, it is nothing compared to the 5% yields both bonds had in the summer of 2007.

The bottom line for investors is that it is likely the top large-cap financials will post some very solid numbers for the third quarter. So we screened our 24/7 Wall Street research database looking for banks that are rated Buy and could print 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 second-quarter results and looks poised to do the same for the third quarter. 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.

Investors receive a 1.89% dividend. Credit Suisse has a $47 price target on Bank of America stock. That is higher than the $44.13 consensus target and Friday’s closing price of $44.34 a share. The bank is expected to report earnings Thursday the 14th.

Citigroup

This top bank stock backed up some recently and is offering an outstanding entry point. 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 pick looks very reasonable in what remains a volatile stock market and in a sector that has dramatically lagged.

Citigroup stock investors receive a 2.83% dividend. Morgan Stanley’s price target of $91 is well above the $84.21 consensus target. Shares closed on Friday at 72.35. The report is expected on Thursday the 14th.
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JPMorgan

This stock trades at a still reasonable 12.0 times estimated 2021 earnings. 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.

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 are very positive on JPMorgan, largely because the industry titan faces a continued broad recovery in nearly every aspect of its business. It has a leading M&A advisory and capital markets product set and market share. It has a massive footprint of corporate and commercial banking customers. And it has a sizable wholesale payments businesses. The bank 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 versus most peers.

Investors receive a 2.35% dividend. The Goldman Sachs price target is $182, and the consensus target for JPMorgan stock is $170.58. The shares closed at $170.22 on Friday. The bank’s report is due on Wednesday the 13th.

Morgan Stanley

This is one of Wall Street’s white-glove firms, and it may be among the best buys among the banking and investment stocks. 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.

Last year, this Wall Street investment bank agreed on a $13 billion purchase of discount brokerage E-Trade. With 5.2 million customers, it was once a revolutionary platform that “helped usher in a dramatic shift among financial services firms” and fueled the rise of indexes and exchange-traded funds, making investing vastly easier for do-it-yourself investors.

Investors receive a 2.83% dividend. The $119 Jefferies price target is well above the most recent close for Morgan Stanley stock at $100.04 a share. Look for the report on Thursday the 14th.

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It is always a bit riskier to buy shares in front of the numbers, and very conservative investors may want either to wait for the results or to buy smaller partial positions. With some solid tailwinds for the rest of the year, not the least of which could be rising interest rates, and a continued reopening of the economy, all these stocks make sense for growth investors with a longer timeframe.

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