3 Big Banks to Buy on Dips
With inflation in the headlines again and many major banks passing the Federal Reserve’s stress test with flying colors, the financial sector could be...
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4 min readThis story originally appeared on MarketBeat
It can be quite confusing for newer investors to see a stock that is down after the company delivers a strong earnings report. This can occur for a variety of different reasons, including the idea that the good earnings were already priced in prior to the release, the forward guidance provided by the company didn’t live up to expectations, or simply that a specific sector is weak on a given day. While it's hard to pinpoint exactly why this occurs, dips in quality names that have just delivered strong earnings can present good buying opportunities if you have conviction in a name.
That could certainly be the case with some of the big bank stocks, which always seem to sell off following their earnings releases, regardless of the actual results. With inflation in the headlines again and many major banks passing the Federal Reserve’s stress test with flying colors, the financial sector could be in for more upside going forward and is a good place to look for dip-buying opportunities at this time. Let’s take a look at 3 big banks to buy on dips below.
JP Morgan Chase (NYSE:JPM)
One of the first names that come to mind when considering which big banks are the best to buy on dips is JP Morgan Chase. It’s one of the largest global financial services companies in the world and has a diversified business model that includes corporate and investment banking, commercial banking, asset and wealth management, and consumer & community banking. If you are a big believer in a V-shaped recovery for the economy, this stock is attractive given its exposure to consumer and commercial loans, which should pick up again as the economy gets back to normal.
JP Morgan delivered mostly positive Q2 earnings results including a Net Income figure that increased by 64% year-over-year to $11.9 billion. This strong figure was boosted by a $3 billion release of loan-loss reserves, which can be viewed as a positive since it signals that the company is feeling confident about the U.S. economic outlook going forward. Investors should also be attracted to this company’s commitment to returning capital to shareholders, as JP Morgan delivered a common dividend of $2.7 billion and repurchased $5.9 billion of stock last quarter.
Goldman Sachs (NYSE:GS)
I’ve mentioned Goldman Sachs in previous posts and why it's one of the best banks to own for the long-term, and the leading investment banking and securities company’s Q2 results help to confirm its “best in breed” status. Goldman reported Q2 EPS of $15.02 per share, up 139% year-over-year, on net revenues of $15.39 billion, up 16% year-over-year. What’s attractive about Goldman at the moment is the fact that it’s profiting from a very strong IPO market. The company generated its 2nd highest quarterly net revenues from its investment banking division, and it’s fair to anticipate plenty of capital market activity ahead in the current low-rate environment.
Like many of the big banks, Goldman Sachs offers a decent dividend payout that was just boosted to $2.00 per common share in Q2, representing an increase of 60%. After the recently favorable stress test results, it’s clear that a market-leading bank like Goldman is ramping up its efforts to return capital to shareholders. The stock could end up being a strong buy after the market has time to digest the company’s latest earnings report along with the big moves we are seeing in the bond market this week, as it usually pays off to own quality names for the long-term.
Morgan Stanley (NYSE:MS)
Since many of the big banks have a lot of similar qualities in terms of their business models, noticing the subtle differences that set a company like Morgan Stanley apart is quite important. Some characteristics that stand out about this big bank include the company’s strong reputation in investment banking and its lower reliance on trading revenue than peers, which is important since we’ve seen a decline in the frantic pace of fixed-income and equity trading that occurred in 2020.
Morgan Stanley also recently announced that it will be significantly boosting its payouts to shareholders after the annual bank stress tests that occurred last month. The company stated that it would be doubling its dividend to $0.70 per share and repurchasing up to $12 billion of its stock in the next year, which is perhaps the most aggressive capital plan among big banks at this time. Morgan Stanley will report its Q2 earnings figures on Thursday, July 15th, and is a stock that is definitely worth a look on any pullbacks.
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