3 US bank stocks to buy amid turmoil in Russian markets
Russia’s continued attack on Ukraine and the ensuing sanctions to punish the country continue to cause market turbulence. The S&P 500 fell 1.55% yesterday, while the Dow Jones Industrial Average fell 1.76%. The growing range of sanctions imposed by the West has a number of wider economic implications, which also spill over to US banks.
While US banks’ direct exposure to Russia is expected to be minimal, sanctions imposed on Russia could harm financial institutions in Europe and the global recovery as a whole. In addition, there are high uncertainties in US capital markets, with volatile movements in bond yields.
Amid such uncertainty, banks like Citizens Financial Group CFG, Webster Financial WBS and Hope Bancorp, Inc. HOPE should be favored, given their fundamental strength.
Last weekend, a number of new sanctions were imposed on Russia by the United States, Britain, Europe and Canada, including restricting the access of certain Russian banks to the main system. global payment system, the SWIFT international payment system. These movements could affect the value of Russian assets held by banks.
While global uncertainties should continue to weigh on investor sentiment, it is difficult to estimate the indirect impacts of these developments on US banks. Although Russian banks are shut out of the global banking system, the country’s relative size and limited relationships with US banks present minimal risk of a likely economic collapse.
By a Reuters article, US banks have so far disclosed $14.7 billion in exposure to Russia. Compared to Italian, French and Austrian banks, which together have $42.5 billion of exposure to Russia, US banks appear to have less likely risk.
With rising inflation, there is a growing chance of a bigger interest rate hike in March. According to data from the CME FedWatch Tool, right now there is a 94.4% chance that the Fed will raise interest rates by 25 to 50 basis points in March. In addition, market participants predict up to seven rate hikes this year. Thus, thriving in a higher interest rate environment, banks should remain in favor of investors.
In addition, robust employment growth and improved consumer confidence should support economic expansion. Therefore, banks, witnessing a decline in net interest margin and net interest income (NII) since March 2020, stand to benefit. An improving economy, increased demand for loans and efforts to diversify operations will also support banks’ financial performance going forward.
Given these tailwinds, US banks seem well positioned to weather the storms caused by the Russian-Ukrainian conflict.
Given the favorable development, now is the time to focus on fundamentally strong banking stocks. Pre-selected banks have a market capitalization of at least $1 billion. Additionally, these banks currently sport a #1 (Strong Buy) or #2 (Buy) Zacks rank and have a Value rating from B
Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the most upside potential. You can see the full list of today’s Zacks #1 Rank stocks here.
Before we discuss the hand-picked companies in detail, let’s take a look at how these stocks have fared over the past six months in terms of stock price movement.
Image source: Zacks Investment Research
Based in Stanford, Connecticut, Webster Financial had $34.9 billion in assets, $22.3 billion in loans, $29.8 billion in deposits, and $3.4 billion in equity as of December 31, 2021. Its market capitalization is $10 billion of dollars.
The company’s NII and non-interest income have grown at a compound annual growth rate (CAGR) of 3.1% and 5.7%, respectively, over the past five years (2017-2021). In February 2022, Webster Financial completed its merger with Sterling Bancorp, leading to one of the largest commercial banks in the North East. This should expand some commercial loan portfolios, HSA Bank and digital banking offerings. This will help diversify and unlock revenue growth opportunities.
Deposits and loans registered a five-year CAGR (2017-2021) of 9.2% and 6.2%, respectively, indicating a healthy balance sheet position. We believe deposit and loan balances, which support the company’s strong capital position, will continue to grow in an improving economic environment.
Consolidating banking centers and corporate facilities, automating processes, reducing ancillary expenses, and other organizational actions helped WBS reduce operating expenses, easing pressure on results.
The Zacks consensus estimate for 2022 earnings has been revised slightly higher over the past 30 days to $5.20. This indicates a growth of 7% year over year. This Zacks #1 ranked company has a value score of B.
Citizen Financialis one of the largest retail banking holding companies in the United States, with approximately 940 branches and 3,000 ATMs in 11 states in the New England, Mid-Atlantic and Midwest regions. It has a market capitalization of $20.5 billion.
Last February, it acquired 80 East Coast branches and the national online deposit business of HSBC bank, strengthening its balance sheet position. In July 2020, the company announced a definitive agreement to acquire Bancorp Investors ISBC in order to strengthen its banking franchise and develop its consumer clientele. The ISBC acquisitions, combined with the HSBC branches, create a strong franchise in the New York and Philadelphia metropolitan areas, as well as in New Jersey by adding 234 branches. Apart from that, the acquisitions are expected to add $29 billion in deposits and $24 billion in loans, creating a solid foundation for revenue growth. The buyout efforts allow the company to expand its product capabilities and geographic reach.
Besides inorganic growth moves, strong loan and deposit balances are likely to help the company’s finances. CFG loans and deposits recorded a CAGR of 3.7% and 11%, respectively, over the past three years (2019-2021). The company improved its deposit base by advancing its deposit collection capabilities and digital model focused on national expansion.
The Zacks consensus estimate for CFG earnings in 2022 has been revised up slightly over the past 30 days to $4.52. The consensus revenue estimate of $5.16 for 2023 indicates 14.2% year-over-year growth. This Zacks #2 ranked company has a value score of B.
Hope Bancorp is the only Korean-American super-regional bank in the United States with total assets of $17.9 billion at the end of 2021. The company has taken steps to expand and re-enter the Georgian market with a branch in full service in Duluth, the heart of the growing Korean American community in Atlanta. With this, the company has branches across the country.
HOPE focused on its deposit mix and core growth, with Q4 2021 marking the ninth consecutive quarter of lower deposit costs. In the fourth quarter, loan originations increased 23%, sequentially, to a record $1.24 billion. Given the improvement in the credit environment, the momentum should continue.
In January, Hope Bancorp’s board of directors approved a new share buyback program, allowing the company to repurchase up to $50 million of its common stock. With $316.3 million in cash and due from banks, such capital deployment moves make HOPE stock an attractive pick.
The Zacks consensus estimate for 2022 earnings has been revised up slightly over the past 30 days to $1.67. This indicates a growth of 0.6% year over year. This rank 2 action from Zacks has a value score of B.
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