In this article, we discuss the 11 best diversified bank stocks to invest in. If you want to skip our detailed analysis of these stocks, go directly to 5 Best Diversified Bank Stocks to Invest In.
The coming months could prove to be challenging for banking stocks as the central bank in the United States considers bringing down interest rates in light of cooling inflation trends. Interest rates had jumped to record highs in the past two years because of rising prices as a result of post-pandemic demand pressures. According to estimates by the International Monetary Fund, global inflation is expected to drop to 5.2% in 2024, from a high of 8.7% in 2022. The world economy will likely grow by 3% this year, the fund forecasts.
Projections by the Federal Reserve indicate that the federal funds rate in the United States is expected to remain high at or above 550 basis points in the early part of 2024 but may drop to between 450 and 500 basis points in the second half of the year. Tightening policies by central banks around the world will limit money supplies. Research firm Deloitte claims that such a backdrop will create the conditions for divergent and sporadic economic growth, especially in the banking and financial sectors.
In the past few years, some of the best diversified banking stocks like JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and Citigroup Inc. (NYSE:C) posted large net interest income gains as a result of high rates. In 2022, banks in the US and Canada posted an 18% year-on-year increase in net interest income. Banks in Europe reported an 11% year-on-year increase in net interest income in the same year. High deposit costs are likely to remain a key area for concern in the banking world even as interest rates drop later this year.
In this overall environment, investors with banking stocks in their portfolios would be well-served by banking firms that have diversified sources of income. In mid-January, Jane Fraser, the CEO of Citigroup Inc. (NYSE:C), highlighted during the fourth quarter earnings call some of the steps that her company was taking to diversify the business and keep pace with the rate of change in the finance world, stressing that realizing the synergies between the five businesses of the firm was one of the key drivers to achieving medium-term revenue targets.
“We grew our tangible book value per share by 6% to $86.19 and we returned $6 billion in capital to our shareholders in the form of common dividends and share buybacks. We remain committed to continuing to return capital to investors through both of these channels. As I reflect on the year, I also want to note that we were a source of strength for the system and for clients during a volatile period for the banking sector and geopolitically and I’m very proud of how our people around the world performed during challenging times. 2024 looks to be similar to 2023 in terms of the macro environment with moderating rates and inflation. We expect to see growth slowing globally with the US well positioned to withstand a run-of-the-mill recession should one materialize. With a strong balance sheet, ample liquidity and diligent risk management we are well positioned to support our clients through whatever environment comes to path. Moreover, we think environments like these play to our strengths, given how far we are down the path of our simplification and divestitures. 2024 will be a turning point as we will be able to completely focus on the performance of our five businesses and our transformation. I recognize the importance of this year and I am highly confident that we will see the benefits of the actions we’ve taken through the momentum of our businesses. Backed by investments in key products we believe we can continue to grow revenues ex-divestitures by 4% to 5% over the medium term. Overall, we remain confident in our ability to adapt to the evolving capital and macro environment to reach our medium-term return targets and return capital to our shareholders whilst continuing the investments needed in our information.”
Our Methodology
Diversified companies that have a banking business at the core of their portfolio were selected and ranked according to hedge fund sentiment. The analyst ratings of each stock are also discussed to provide readers with some context for their investment choices. The hedge fund sentiment around each stock was calculated using the data of around 900 hedge funds tracked by Insider Monkey in the fourth quarter of 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
A city skyline with multiple regional banks in the foreground.
Best Diversified Bank Stocks to Invest In
11. Mizuho Financial Group, Inc. (NYSE:MFG)
Number of Hedge Fund Holders: 7
Mizuho Financial Group, Inc. (NYSE:MFG) engages in banking, trust, securities, and other businesses related to financial services. At the end of the fourth quarter of 2023, 7 hedge funds in the database of Insider Monkey held stakes worth $13 million in Mizuho Financial Group, Inc. (NYSE:MFG), compared to 9 in the preceding quarter worth $3.4 million.
Just like JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and Citigroup Inc. (NYSE:C), Mizuho Financial Group, Inc. (NYSE:MFG) is one of the best diversified bank stocks to invest in.
10. HSBC Holdings plc (NYSE:HSBC)
Number of Hedge Fund Holders: 15
HSBC Holdings plc (NYSE:HSBC) provides banking and financial services worldwide. On March 1, investment advisory RBC Capital maintained a Sector Perform rating on HSBC Holdings plc (NYSE:HSBC) stock and lowered the price target to 7.25 pounds sterling from 7.50 pounds.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in HSBC Holdings plc (NYSE:HSBC) with 783,900 million shares worth more than $31 million.
9. Barclays PLC (NYSE:BCS)
Number of Hedge Fund Holders: 17
Barclays PLC (NYSE:BCS) provides various financial services in the United Kingdom, Europe, the Americas, Africa, the Middle East, and Asia. On March 14, investment advisory JPMorgan maintained an Overweight rating on Barclays PLC (NYSE:BCS) stock and raised the price target to 200 GBP from 180 GBP.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Marshall Wace LLP is a leading shareholder in Barclays PLC (NYSE:BCS) with 6.8 million shares worth more than $54 million.
8. Discover Financial Services (NYSE:DFS)
Number of Hedge Fund Holders: 43
Discover Financial Services (NYSE:DFS) provides digital banking products and related services. On February 23, investment advisory Piper Sandler maintained an Overweight rating on Discover Financial Services (NYSE:DFS) stock and raised the price target to $145 from $127.
At the end of the fourth quarter of 2023, 43 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Discover Financial Services (NYSE:DFS), compared to 46 in the preceding quarter worth $1.2 billion.
7. Capital One Financial Corporation (NYSE:COF)
Number of Hedge Fund Holders: 51
Capital One Financial Corporation (NYSE:COF) operates as the financial services holding company for several financial institutions in the US. On February 29, investment advisory UBS maintained a Neutral rating on Capital One Financial Corporation (NYSE:COF) stock and raised the price target to $140 from $132.
Among the hedge funds being tracked by Insider Monkey, Camas, Texas-based investment firm Fisher Asset Management is a leading shareholder in Capital One Financial Corporation (NYSE:COF) with 9.5 million shares worth more than $1.2 billion.
In its Q4 2023 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and Capital One Financial Corporation (NYSE:COF) was one of them. Here is what the fund said:
“Long-term holding Capital One Financial Corporation (NYSE:COF) was also one of our better performers this quarter. The company boasts a diversified deposits base with about 80% FDIC insured, well above industry average. It is the only major bank 100% in the cloud, which enables better underwriting and quicker response to changes in the environment. This technology also helps reduce operating and fraud cost while freeing up cash flow for reinvestment in marketing to grow products (Venture X card) and build its brand. Periods of stress, like we saw in the banking sector during March, are a reminder of the underwriting acumen and high quality deposits of Capital One. We added to our position after the fallout, knowing that the company’s seasoned management team had steered capably through previous cycles. Today, as credit card delinquencies have risen to more normal levels, Capital One is already reporting a slowing in delinquency growth. Conversely, some peers saw prior underwriting missteps begin to surface in 2023. Currently trading at 9 times 2024 consensus earnings and around book value, we remain enthusiastic about the investment.”
6. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 56
Morgan Stanley (NYSE:MS) is a financial holding company that provides various financial products and services to corporations, governments, financial institutions, and individuals. On January 20, investment advisory Oppenheimer maintained an Outperform rating on Morgan Stanley (NYSE:MS) stock and raised the price target to $109 from $106.
Among the hedge funds being tracked by Insider Monkey, Texas-based investment firm Fisher Asset Management is a leading shareholder in Morgan Stanley (NYSE:MS) with 20 million shares worth more than $1.8 billion.
In addition to JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and Citigroup Inc. (NYSE:C), Morgan Stanley (NYSE:MS) is one of the best diversified bank stocks to invest in.
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Disclosure. None. 11 Best Diversified Bank Stocks to Invest In is originally published on Insider Monkey.
