With expectations rising for the Fed to cut rates sometime this year, banking stocks are very much back in focus. While it was looking like 2023 was going to go down as one of the poorer years in the recent past, improving inflation readings in Q4 sparked a broad rally across all equities, including banks.
The Invesco KBW Bank ETF NASDAQ: KBWB has jumped nearly 40% since then, easily outpacing the S&P 500’s 17% return. With that kind of buying momentum, banking stocks are finding themselves more popular than they’ve been in a long time. Even the Wall Street analysts are weighing in on the bull’s side, which is always a great sign. Here are three of the bigger banking stocks that have just been upgraded and are worth keeping a close eye on.
Shares of Citi have been going from strength to strength in recent months, with a 5% jump in yesterday’s session sending them to their highest level in almost two years. While they’ve no doubt been riding the broad risk-on sentiment that’s taken almost all stocks higher since November, much of the recent gains have been specific to them.
A decent Q4 earnings report earlier this month fanned the flames of the rally, while a fresh upgrade from the team at Morgan Stanley yesterday is set to see the gains continue into February. What’s particularly noteworthy about this move was that it was a double-barrelled upgrade, which saw Morgan Stanley’s rating jump from being an official Sell or Underweight rating to an official Buy or Overweight rating. Most of the time, upgrades or downgrades involve a single step in one direction; in this case, that would have been Neutral, so the fact that Citi has swung all the way over is noteworthy.
Analyst Betsy Graseck is expecting the Basel III rules to be lightened up in the near term, which would clear the way for share repurchase programs to be increased. And the best news? Her $65 price target was dwarfed yesterday evening by the $95 target that Oppenheimer put onto Citi stock. From where shares closed on Tuesday, that’s pointing to an upside of at least 65%.
Like with Citi, Morgan Stanley flagged Goldman as one of the big banks with the highest capital levels in the industry. If the Basel III rules are indeed lightened, then a boosted share repurchase program is very much on the cards. This can be one of the most bullish tailwinds a stock can have, as it signals to the market that management is so convinced the share price is trading below the fair value that they’re willing to buy shares with their own capital.
Graseck upped her rating on Goldman to a bullish Overweight, but interestingly, her price target of $449 was also topped by that of Oppenheimer last night. They’re aiming for shares to hit $506 in the coming months, which would involve a rally of some 30%.
Were Goldman shares able to pull this off, they’d have broken through 2021’s all-time record and would be trading at new highs. They’ve spent the past month consolidating after a 35% rally that started in November, so look for this week’s upgrade to get them started northward once again.
While one of the weaker performers in the past two years, Bank of America shares have gained 40% since October’s low, making them one of the stronger bank stocks in recent weeks. They were also part of the club that Morgan Stanley upgraded yesterday, and Oppenheimer came out strong as well. With a street-high price target of $50, the 40% upside being targeted here might be too good to miss.
It’s definitely carrying a bit more baggage than the others, but that only adds to the image here of Bank of America as an underdog. With a price-to-earnings (PE) ratio of just 11, it’s by far the cheapest of the three going by valuation. Citi’s is 14, while Goldman’s is 17, so with Bank of America, you can’t help but feel there’s a bargain on offer right now.
The stock needs to get above $35 and hold that line. Otherwise, it risks falling back into the multi-year downtrend it has yet to break out from decisively. If it can manage to do that in the next few weeks, however, then things get interesting.
Before you consider Bank of America, you'll want to hear this.
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