Analysts see large upside for these undervalued bank stocks.
After a major year in 2021, bank stocks are outperforming by and by in 2022. The combination of a recuperating U.S. economy and potential for aggressive Federal Reserve interest rate hikes could set up bank stocks for outsize earnings growth in the next a few years. Bank stocks have also benefited from reserve releases and profit hikes in recent quarters. Even after large 2021 gains and a hot start to 2022, analysts say many bank stocks remain undervalued. The following are 10 of the best bank stocks to buy in 2022, according to Wall Street analysts.
1) Citigroup Inc. (ticker: C)
Shares of U.S. megabank Citigroup significantly underperformed its bank peers in 2021, but Bank of America analyst Ebrahim Poonawala says Citigroup management is on the right track with its efforts to restructure and simplify the bank’s global business, including an exit strategy for Mexico. Citigroup is trading at a discount to tangible book value, but Poonawala says a clear update at its upcoming investor day event March 2 could open value in Citigroup shares. Bank of America has a “buy” rating and a $100 cost target for C stock, which closed at $63.22 on Feb. 23.
2) Bank of America Corp. (BAC)
Bank of America shares were up about 47% in 2021, but that momentum hasn’t continued so far in 2022. CFRA Research analyst Kenneth Leon says Bank of America is particularly strategically set up for the rising interest rate cycle, given its high ratio of net interest income to total net revenue ratio relative to peers. Leon is projecting that loan volume and loan balances in the bank’s consumer and commercial/industrial units will continue to rise throughout 2022. He forecasts 5% revenue growth in 2022 and 7% growth in 2023 as interest margin expands. CFRA has a “buy” rating and a $53 cost target for BAC stock, which closed at $44.78 on Feb. 23.
3) M&T Bank Corp. (MTB)
M&T Bank is a commercial-focused U.S. regional bank that operates in eight U.S. states in the Northeast and mid-Atlantic. RBC Capital Markets analyst Gerard Cassidy says M&T has a top-tier management team and is genuinely amazing at managing capital among the top 20 banks. Cassidy says the bank’s planned $7.6 billion acquisition of People’s United Financial Inc. (PBCT) will immediately boost M&T’s tangible book value and create an opportunity to develop earnings and generate value in the long haul. RBC has an “outperform” rating and a $170 cost target for MTB stock, which closed at $180.81 on Feb. 23.
4) Lloyd’s Banking Group PLC (LYG)
Lloyd’s Banking Group is a diversified bank and insurance supplier based in the U.K. Morningstar analyst Niklas Kammer says the bank is adequately capitalized after it passed the Bank of England’s stress test in December. Kammer says Lloyd’s has become a generally safe play on domestic U.K. retail and commercial banking following its restructuring in the aftermath of the financial crisis. As mortgage estimating has become pressured, Kammer says, Lloyd’s has shifted focus to financial planning offerings, credit cards and loans to small-and medium-size enterprises. Morningstar has a “buy” rating and a $3.70 fair value estimate for LYG stock, which closed at $2.80 on Feb. 23.
5) Goldman Sachs Group Inc. (GS)
Shares of investment bank Goldman Sachs gained 45% in 2021. However, the stock has lagged behind its banking peers so far in 2022, and Goldman reported a fourth-quarter earnings miss in January. Leon says Goldman will gain market share, develop its assets under management and generate charge income growth in 2022. In addition, he says Goldman shares trade at a significant earnings multiple discount to leading asset managers like Charles Schwab Corp. (SCHW) and BlackRock Inc. (BLK), along with the S&P 500 all in all. CFRA has a “strong buy” rating and a $440 cost target for GS stock, which closed at $341.19 on Feb. 23.
6) Wells Fargo and Co. (WFC)
Wells Fargo has been the top-performing bank stock since the beginning of 2021, gaining 59% last year. Despite some modest gains so far this year, Poonawala says, Wells Fargo remains a top stock pick. He says the bank is strategically set up for rising interest rates and bouncing back loan demand, and its expense leverage sets it apart from other large-cap banks. In addition, Poonawala says the bank’s sizable capital return should assist it with developing its return on tangible common equity. Bank of America has a “buy” rating and a $70 cost target for WFC stock, which closed at $53.95 on Feb. 23.
