Merrill Lynch’s 3 Top Global Bank Stocks to Buy Have Tremendous Upside

The analysts at Merrill Lynch report that 2014 capital markets business so far was better than expected, and while investment banking took a seasonal hit, the fourth quarter should prove to be better. With the first half of 2015 providing the usual seasonality issues, the improving macro backdrop and current very reasonable valuation make three stocks look very appealing.

All three Merrill Lynch global bank picks are rated Buy.

Barclays PLC (NYSE: BCS) is an international financial services provider engaged in personal banking, credit cards, corporate and investment banking and wealth management with an extensive presence in Europe, the Americas, Africa and Asia. It is also the company that acquired the Lehman Brothers brokerage offices and staff in the United States after it failed in 2008. Barclays operates in more than 50 countries and employs approximately 140,000 people. It moves, lends, invests and protects money for customers and clients worldwide.

Barclays investors are paid a 1.70% dividend. The Merrill Lynch price target for the stock is $20.83. The Thomson/First Call consensus target is $18.71. Shares closed trading on Tuesday at $15.21.

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Citigroup Inc. (NYSE: C) makes the list at Merrill Lynch and is trading at a very reasonable 11.5 times forward 2015 earnings. In addition, Citi is still trading below the 52-week high set way back in January of this year. With its tremendous global business model, the Merrill Lynch analysts feel that the banking giant’s current market multiple is very discounted compared to peers. While regulatory and capital standards will continue to be a factor, the risk is well overridden by the upside potential.

Citigroup still just pays a tiny 0.1% dividend. Merrill Lynch has a $65 price target, and the consensus target is $59.39. Shares ended Tuesday at $53.19.

Morgan Stanley (NYSE: MS) continues to show tremendous growth, and it is running neck and neck with Goldman Sachs as the bank of choice for high-profile IPOs. Trading at a price-to-earnings multiple of 12, that seems extremely reasonable given the 2015 expectations for earnings growth of more than 20%, a price-to-book ratio of 1.00 and a price-to-sales ratio of 1.96. The company also has 602 billion in cash equivalents on its balance sheet, versus $368 billion in total debt

Morgan Stanley investors are paid a 1.1% dividend. The Merrill Lynch price target is set at $38, the consensus target is $36.60. Shares closed Thursday trading at $34.66.

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While many on Wall Street see the American economy as the shining star for 2015, owning the top financial names with significant presence in fast growing areas like Asia and Latin America also makes very good sense. These stocks are suitable for long-term growth accounts that can handle some market volatility.