When interest rates are on the move, it’s always a good idea to start considering the best bank stocks to buy now.
Bank of America (BAC): One of Warren Buffett’s favorite stocks.
Citigroup (C): The Oracle of Omaha recently became a fan of this pick.
East West Bancorp (EWBC): Got its start in 1973 by focusing its efforts on the Chinese-American community.
JPMorgan Chase (JPM): Analysts like it, even though the stock is down big this year.
Wells Fargo (WFC): Finally seems to be putting its scandals in the rearview mirror.
A customer makes a transaction at a bank
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When interest rates are going up, I always think it’s a good idea to take a closer look at bank stocks to buy. That’s because they have a better chance of turning a profit in a rising interest rate environment. When the Federal Reserve raises rates, the net interest margin also goes up. Net interest margin is the difference between interest banks earn on assets and what it pays to depositors and creditors in interest.
Of course, rising interest rates are only one factor in bank activity these days. You can’t assume every institution is going to profit equally from a rising interest rate environment. And don’t forget there are plenty of other pressures on the economy, such as Russia’s invasion of Ukraine, high energy prices and the moratorium on federal student loan payments.
Oppenheimer analyst Chris Kotowski is pretty bullish on banks right now. He says loan growth and rising interest rates are generally good for these picks. And if the economy would actually fall into a recession, today’s banking industry “would handle it better than any recession in history.”
So, what are the best bank stocks to buy right now? To answer that, I screened for U.S. bank picks that have a consensus “buy” rating or better from the analysts that cover them. I also looked for stocks that offer a dividend to investors.
Street view on Bank of America branch in NYC with people waiting, pedestrians crossing, crosswalk, bike, road in Manhattan
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Could Bank of America (NYSE:BAC) use some good news? Definitely. BAC stock is down nearly 24% this year.
That’s even after a pretty good earnings report, in which it beat analysts’ expectations by posting revenue of $23.2 billion. The experts had predicted $23.1 billion. Earnings per share (EPS) was 80 cents, which was better than the 75 cents EPS that analysts had expected.
Analysts have a consensus price target of $48.28, which is 36% better than the current price. Plus, BAC stock offers a dividend of nearly 2.5%.
Need more convincing? Bank of America is one of Warren Buffett’s favorite stocks, being the second-largest holding in Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) portfolio.
Citigroup (C)
A Citibank (C) sign hangs on a Citibank office in Hong Kong.
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New York-based Citigroup (NYSE:C) also had a good first quarter. It beat analysts’ estimates for both revenue and earnings. Citigroup had Q1 revenue of $19.2 billion versus analysts’ expectations of $18.2 billion. It earned $2.02 per share versus expectations of $1.55 per share.
But like Bank of America, C stock is suffering. It’s down nearly 18% on the year. However, this is better than BAC stock, and even better than the S&P 500, which flirted with bear market territory in May.
Buffett is a recent convert to C stock. Berkshire Hathaway disclosed it acquired 55.15 million shares, making it Buffett’s 15th-largest position.
Analysts have a consensus price target of $66.45 on C stock, giving it potential upside of 28%. And on top of that, Citigroup currently offers a whopping 3.9% dividend yield.
East West Bancorp (EWBC)
bank stocks Hand inserting ATM card into bank machine to withdraw money
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This is one name on the list that isn’t a so-called big bank stock. But California-based East West Bancorp (NYSE:EWBC) isn’t a company to take lightly. With a market capitalization of nearly $10 billion and total assets of more than $60 billion, East West Bancorp got its start in 1973 by focusing its efforts on the Chinese-American community.
Now it has more than 120 locations in the U.S. and China, plus a full banking license from Beijing. Its U.S. locations are spread throughout California, Nevada, Washington, Texas, New York, Georgia and Massachusetts.
Earnings for the first quarter included $495.4 million in revenue, which beat analysts’ estimates for $481.5 million. EPS also was a pleasant surprise, coming in at $1.66 versus the $1.53 per share that analysts had predicted.
EWBC stock is down 14% so far this year, but analysts aren’t expecting that trend to continue. The consensus price target is $98, which represents 43% upside. On top of that, East West Bancorp offers a 2.3% dividend yield.
JPMorgan Chase (JPM)
JPMorgan Chase (JPM) lettering on a corporate office in New York City.
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That brings us back to one of the big banks, and they really don’t get any bigger than JPMorgan Chase (NYSE:JPM). It currently boasts a market capitalization of $367 billion.
Earnings in the first quarter were better than the market expected. Revenue of $31.6 billion beat analysts’ forecast for $30.9 billion. Earnings per share of $2.76 was also better than expectations of $2.69.
But investors punished JPM stock because the bank’s profits were down 42% from a year ago, and revenue was down by 5%. The company blamed increased costs for bad loans and the Russian invasion of Ukraine.
Even though JPM stock is down 23% so far this year, analysts paint a rosy picture. The consensus price target of $157.43 is 26% better than the stock’s current price. JPM stock currently pays a dividend yield of 3.4%.
Wells Fargo (WFC)
Wells Fargo (WFC) bank sign in yellow and red with wagon logo. The sign is flanked by tall grass
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I didn’t expect to see Wells Fargo (NYSE:WFC) as the fifth and final name in my search. The beleaguered bank has had a wealth of problems in recent years, including a 2016 investigation that showed employees opened more than 2 million fraudulent accounts in order to snag bonuses.
Then, there was a 2017 report that the bank incorrectly fined more than 110,000 mortgage clients for missing a deadline when it was really the bank’s fault. After that, there was a 2018 report that Wells Fargo had to refund millions to customers after it improperly tacked on services like pet insurance to customers’ accounts without their knowledge.
Earnings for the first quarter were mixed. The company beat analysts’ estimates with 88 cents EPS versus 80 cents. But revenue of $17.6 billion was less than the $17.8 billion that analysts anticipated. Wells Fargo blamed the problem on a drop in mortgage lending — and that’s a problem that will continue for the near future.
But analysts see light at the end of the tunnel. Even though WFC stock is down nearly 16% so far this year, they have a consensus price target of $60.01 on the stock. That’s 40% better than today’s price.
When you also consider Wells Fargo offers a 2.3% dividend yield, it’s no wonder analysts are starting to think differently about WFC stock.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
