Banks Reported Their Earnings Last Week; Should Investors Buy Bank Stocks Now?
Bank stocks have been one of the hardest-hit sectors since the pandemic began. Since most bank stocks, if not all, have taken a beating, investors have plenty to fear. With federal funds rate to remain near zero through 2022, the banks suffered another blow. But most concerns have appeared to subside after the banks have revealed the second-quarter reports last week. One thing to note from last week’s earnings is that investment banks have performed better than commercial banks. The quarterly results, with the exception of Wells Fargo (WFC Stock Report), were far better than what many expected.
Some investors don’t seem to understand the new accounting rules. This makes it very difficult to understand how good the bank earnings have been during the pandemic. That said, investors may soon realize their concerns are overblown and have been punishing bank stocks unfairly. If we take a look at the Financial Select Sector ETF (XLF Stock Report), it is still down by 20%. Here’s the thing, with the “better” than expected quarterly results, could bank stocks be the next to rally?
The pandemic has certainly created tremendous uncertainty about consumers’ ability to repay their loans. And the record-low interest environment isn’t entirely doing any good for banks to improve their profits. Some are even blaming the accounting regulators for a lower pre-tax income. But even if there weren’t any changes to the accounting rules, it would still be lower than the 2019 levels. The big question here is, would it have made any difference to the stock valuation? I’ll leave that for you to answer. Now that bank stocks are showing some signs of a rebound, should investors buy bank stocks right now?
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Cheap Bank Stocks To Buy Right Now [Or Avoid]: Bank of America Corporation
If there’s another reason to buy banking stocks, for instance, Bank of America Corp. (BAC Stock Report), it is because Warren Buffet just increased his stake in BAC to 11.3%. Buffett’s increased bet on BAC stock signals he’s actively hunting for bargains again, and willing to add to his existing holdings at the right price. So if the legendary investor thinks that BAC is now at a bargain, should investors follow suit? I guess it’s reasonable to assume that we will see an increase in trading activity for BAC stocks today.
For the record, Berkshire owns shares of several other large banks too. However, most are well below the 10% threshold. The company owns just 1.9% of JPMorgan Chase (JPM Stock Report), 8.4% of Wells Fargo, and 2.2% of PNC Financial (PNC Stock Report). If we look at Buffett’s holdings in bank stocks, it is obvious that BAC stock is still his favorite. If we look back at this year’s trading record, BAC stock is down 31% year to date, an attractive valuation for the legendary value investor.
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Cheap Bank Stocks To Buy Right Now [Or Avoid]: Goldman Sachs
To say Goldman Sachs (GS Stock Report) blew past analyst’s expectations during its second-quarter announcement was a major understatement. This is because the revenue came in $3.5 billion higher than Wall Street’s estimates. This represents a revenue growth of 41% year over year, fueled by the institution’s highest trading revenue in nine years and extremely strong results in both debt and equity underwriting.
More importantly, investors might want to take a closer look at GS’s long-term potential in the consumer banking business. Take, for example, the Apple (AAPL Stock Report) Card. This is a credit card that Goldman issues. And it is one of the most successful credit card product launches. The good news is, it continues to thrive despite the market environment.
Despite its astonishing results from the investment banking segment and the compelling potential of its consumer banking business, Goldman is currently trading at $203 per share and is still 13% lower than where it was the beginning of this year. Since the company has rebounded strongly from its March lows, this also signals that it is more resilient than other banking stocks in the market. Considering this bank stock has lots of potential upsides, would it be a wise move to buy GS stocks now?