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The Zacks Analyst Blog Highlights: The Goldman Sachs Group Inc. , JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Morgan Stanley

The Goldman Sachs Group Inc. , JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Morgan Stanley are highlighted in this analyst blog.

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This story originally appeared on Zacks

For Immediate Release

Chicago, IL – January 6, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The Goldman Sachs Group Inc. GS, JPMorgan Chase & Co. JPM, Bank of America Corp. BAC, Wells Fargo & Co. WFC and Morgan Stanley MS.

- Zacks

Here are highlights from Wednesday’s Analyst Blog:

5 Bank Stocks to Buy on Rising U.S. Bond Yields

The U.S. government bond market has started 2022 with soaring yields. The Fed’s decision to speed up the tapering  of the monthly bond-buy program and the possibility of an interest rate hike earlier-than-expected are the primary reasons for the recent spike in government bond yields. Mounting inflationary pressure has compelled the central bank to tighten its pandemic-era easy-money policies.

A higher interest rate will benefit the financial sector, especially for banks. At this stage, it will be prudent to invest in bank stocks with a favorable Zacks Rank. Here are five such stocks — The Goldman Sachs Group Inc., JPMorgan Chase & Co. , Bank of America Corp., Wells Fargo & Co. and Morgan Stanley.

Yields on Sovereign Bonds Surge

On Dec 15, Fed Chairman Jerome Powell said in his post FOMC statement that the central bank will raise the tapering of the monthly bond-buy program from $15 billion per month to $30 billion per month effective January 2022. At this rate, the quantitative easing program will end on March 2022.

With respect to an interest rate hike, Powell said “We’re in a position where we’re ending our taper by March, in two meetings, and we’ll be in a position to raise interest rates as and when we think it’s appropriate.”

However, Fed’s dot-plot indicated that all 18 members are expecting at least one rate hike in 2022. Out of 18 Fed members, 12 expect three rate hikes in 2022 followed by two more rate hikes in 2023 and 2024.

A large section of economists and financial researchers are expecting the central bank to hike the benchmark lending rate for the first time in three years as early as in March or in April instead of June as projected in December.

Consequently, on Jan 4, the yield on the benchmark 10-Year U.S. Treasury Note climbed to 1.71%. The yield was at about 1.65% on Jan 3 and 1.51% on Dec 31. The yield was as low as 0.91% at the beginning of 2021. Notably, the 10-Year U.S. Treasury Note is linked to lending rates for mortgages and many other business and consumer loans.

Banks Likely to Benefit

A hike in interest rate will raise the cost of funds, which would enable the financial sector, especially banks, to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting profits margins.

Banks have been witnessing a contraction in net interest margins (an important barometer to gauge banks’ financial performance) owing to near-zero rates. This is also hurting their top-line growth.

Consequently, as the Fed starts raising interest rates, pressure on margins will gradually alleviate and support banks’ net interest income. Despite the diversification of revenue streams, banks earn a major portion of their revenues from interest income.

We expect the U.S. economy to become fully operational as the pandemic is expected to reach its peak this winter. Several major investment bankers and money managers have already started removing pandemic-related adjustments from their financial models. As a result, the economy will operate in full swing, and banks will generate more business.

Our Top Picks

We have narrowed our search to five banking behemoths with strong long-term (3-5 years) growth potential. These stocks have seen positive earnings estimate revisions for the current year in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Goldman Sachs Group is benefiting from its business diversification. Within traditional banking, a diversified product portfolio has better chances of sustaining growth than many other banks, which have exited some of these areas. The Goldman Sachs operates in four segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.

Amid the continued deal-making frenzy, GS’ solid position in announced and completed mergers & acquisitions globally is likely to keep driving its investment banking revenues in the upcoming quarters. Goldman Sachs’ efforts to diversify fee-based revenue sources and expand globally from strategic acquisitions will support the top line. GS’ steady capital deployment activities act as a tailwind.

The Goldman Sachs has a negative expected earnings growth rate for next year. However, GS has a long-term growth rate of 11.2%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the last 30 days.

JPMorgan Chase is expanding its footprint in new regions by opening branches. Strategic acquisitions/investments, global expansion and digitization initiatives, and decent mortgage banking business are expected to continue supporting JPMorgan Chase’s financials. Also, a robust investment banking pipeline will drive the company’s revenues. JPM is expected to keep enhancing shareholder value through impressive capital deployment activities.

JPMorgan Chase has a negative expected earnings growth rate for next year. However, JPM has a long-term growth rate of 5%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.

Bank of America continues to align its banking center network according to customer needs. Opening of new branches, enhancing digital capabilities and initiatives to manage expenses along with a strong balance sheet and liquidity position, and a solid IB pipeline will continue to support BAC’s financials. Further, Bank of America will keep enhancing shareholder value through impressive capital deployment activities.

Bank of America has a negative expected earnings growth rate for next year. However, BAC has a long-term growth rate of 7%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.

Morgan Stanley has been continuously making efforts to focus less on the capital markets-driven revenue sources, and the acquisitions of Eaton Vance and E*Trade Financial are a step in this direction. An increasing focus on corporate lending is expected to support Morgan Stanley’s financials. MS’ robust capital deployments reflect a solid liquidity position, through which it will enhance its shareholder value.

Morgan Stanley has a negative expected earnings growth rate for next year. However, MS has a long-term growth rate of 7%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days.

Wells Fargo continues to build on its deposits base, which witnessed a five-year compound annual growth rate of nearly 2%, with the trend continuing in the first nine months of 2021. The growing deposit balance, driven by encouraging economic trends, strengthens Wells Fargo’s liquidity position.

With continued economic recovery and government stimulus payments, the credit quality of WFC is likely to improve in the quarters ahead. Progress on efficiency initiatives has propelled expense control. This is expected to keep supporting Well Fargo's bottom line growth.

WFC has a negative expected earnings growth rate for next year. However, Wells Fargo has a long-term growth rate of 10.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days.

Zacks Top 10 Stocks for 2022

In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?

From inception in 2012 through November, the Zacks Top 10 Stocks gained an impressive +962.5% versus the S&P 500’s +329.4%. Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.

Be First to New Top 10 Stocks >>

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.



Zacks Top 10 Stocks for 2022

In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?

From inception in 2012 through November, the Zacks Top 10 Stocks gained an impressive +962.5% versus the S&P 500’s +329.4%. Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.

Be First To New Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 

The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report

 

Bank of America Corporation (BAC): Free Stock Analysis Report

 

Wells Fargo & Company (WFC): Free Stock Analysis Report

 

JPMorgan Chase & Co. (JPM): Free Stock Analysis Report

 

Morgan Stanley (MS): Free Stock Analysis Report

 

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