In this article, we will discuss: 7 Best American Bank Stocks To Buy According to Hedge Funds
According to the Labor Department’s Bureau of Labor Statistics, August marked a 142,000 increase in nonfarm payrolls, up from 89,000 in July but less than the 161,000 predicted by most analysts. As anticipated, the jobless rate dropped slightly by 4.2%. However, the “real” unemployment rate increased to 7.9%, the highest level since October 2021. Moreover, the average hourly wage grew by 3.8% over the previous year and by 0.4% over the previous month, exceeding the predicted increases by 3.7% and 0.3%.
Nonetheless, the U.S. market for digital banking platforms is growing rapidly, and it was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031, according to Verified Market Research. Per the research, it is expanding due to a number of factors, including shifting customer preferences, the rise of mobile banking, technological advancements, and the need for customization.
On the other hand, according to the Research and Markets, the US retail banking market is expected to expand by $91.47 billion between 2023 and 2028, with a CAGR of 4.35% during that forecast period. The industry is being pushed by the further digital transformation of retail banking, the expansion of fintech company partnerships, and the increased emphasis on financial inclusion per the research.
In the United States, the average bank account balance increased from $5,300 in 2019 to $8,000 in 2022. In 2022, the median balance was $62,500, a 29% increase from 2019 as per the Forbes survey. The Federal Reserve’s Survey of Consumer Finances indicates that 98.2% of American families own a transaction account of some kind. As per the Federal Reserve: Economic Well-Being of U.S. Households in 2021, the percentage of people without banks is 6%, up 1% from 2020 to 2021. As of 2022, 78% of consumers preferred smartphone applications or websites over traditional in-person banking, revealing the dominance of digital banking according to the Forbes Advisor: 2022 Digital Banking Survey. For 57% of Americans, debit cards are their preferred mode of payment per the Forbes 2023 Banking Survey, and even though rates are likely to rise, only 48% of people have opened a certificate of deposit (CD) as per the survey.
According to the US Bank Market Report 2024, U.S. bank earnings are expected to fall 2.8% year on year, discounting gains from unsuccessful bank acquisitions in 2023. Pressure on net interest margins and rising credit costs are the causes behind this decline. As banks acknowledge losses on their commercial real estate portfolios and accumulate reserves, higher loan costs are expected. In 2025 and 2026, earnings are anticipated to grow despite these obstacles as loan loss provisions decline and profitability increases.
Looking forward, Deloitte’s “2024 banking and capital markets outlook” outlines that, amidst a volatile global economy, the banking and capital markets industry will confront significant challenges in 2024. The industry is changing as a result of tighter rules, rising interest rates, and a declining money supply. Digital identity and generative AI are two examples of how quickly advancing technology will change how banks function and provide for their customers.
Banks need to adapt to modest organic growth and discover new revenue streams even with a strong base. The increase in private capital is one of the rising competitive forces that trading and investment banking will need to adjust to. In addition, the industry is reevaluating its tactics in light of evolving business models and recent regulatory changes.
With that said, here are the 7 Best American Bank Stocks To Buy According to Hedge Funds.
A professional banker meeting with a customer in her office to discuss his finances.
Methodology:
We sifted through holdings of bank ETFs and online rankings to form an initial list of 20 American bank stocks. Then we selected the 7 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
7. Capital One Financial Corporation (NYSE:COF)
Number of Hedge Fund Investors: 65
The holding company for a variety of financial services, Capital One Financial Corporation (NYSE:COF), is based in McLean, Virginia. The company was founded in 1994 as a spinoff of Signet Financial’s credit card division, and its main business activities now include credit card lending, auto loans, and commercial lending.
The firm uses its online and mobile channels to acquire and service its customers while maintaining a smaller branch network than its traditional banking competitors. COF’s emphasis on online bank accounts has made it possible for it to have a wider national footprint than it would have otherwise been able to due to its limited branch network. The aforementioned phenomenon enables the financial services company to engage in the benefits of a major financial institution without incurring the costs associated with running a nationwide branch network.
In the second quarter of 2024, Capital One’s net interest income came from its consumer segment, which made up approximately 25% of the company’s total revenue. The bank’s credit card division provided a significantly bigger 70% of this. While credit cards are a significant business for most banks, Capital One Financial considers credit cards to be “the” business.
Donald Fandetti of Wells Fargo kept his Buy rating on the US-based company, attributing the company’s anticipated 13% profit increase by 2027 to its merger with Discover. The transaction is anticipated to improve Capital One’s valuation and promote growth through premium services and EPS accretion, despite a 16% dilution in tangible book value.
Capital One Financial Corporation (NYSE:COF) received a Buy rating from Jefferies analyst John Hecht, who also increased the price target to $170 from $165 as a consequence of the company’s solid Q2 earnings, improved operating costs, and better credit performance. Hecht additionally highlighted the strategic actions taken by Capital One to support future growth, such as the company’s attempts to acquire customers and its effective management of the Walmart agreement.
Ariel Global Fund stated the following regarding Capital One Financial Corporation (NYSE:COF) in its first quarter 2024 investor letter:
“We also added global financial services company, Capital One Financial Corporation (NYSE:COF). The company is the largest online consumer and commercial bank with a leading position in general purpose and small business credit cards. We view the company as competitively advantaged particularly due to their investment in technology. According to recent reports, COF is also rated as one of the leading banks within Artificial Intelligence (AI). Notably, the company recently announced an acquisition of Discover Financial Services (DFS) which we believe would produce significant long-term earnings accretion. COF will be able to leverage DFS’ proprietary payments network, enabling direct interaction with merchants and consumers. This closed loop dynamic should lead to higher volumes of credit card conversions presenting further upside for its shares. At current levels, we view the long-term outlook to be attractive, given favorable business trends, stabilizing delinquency rates within the credit card industry, synergies from the DFS acquisition and COF’s enhanced focus on technology.”
Natixis Global Asset Management’s Harris Associates is the largest shareholder in the company, with 15,180,437 shares worth $2.10 billion.
6. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Investors: 68
Goldman Sachs is one of the world’s leading American asset management and investment banking firms. About 20% of its revenue comes from investment banking, 45% from trading, 20% from asset management, 15% from wealth management, and 15% from retail financial services. In terms of net revenue, the Americas make up more than 60% of the business, with Asia coming in second at 15% and Europe, the Middle East, and Africa at 25%.
The US-based company is refocusing the projects it has been working on in the last few years. At its investor day in 2023, it outlined three priorities. It wants to grow the percentage of wallets held by customers and boost the amount of finance it offers for trading and investment banking. Along with raising outside capital for its alternative business, it also intends to increase its management fees in asset and wealth management, specifically in wealth management. Its new platform company aims to grow and make a profit.
The firm experienced difficulties when consumer banking discontinued, including a $470 million loss from the discontinuation of its Marcus loan, and investment banking stagnated. However, 2024 saw a significant recovery.
For the second quarter of 2024, GS reported $12.73 billion in revenue, a 21.10% YoY rise. Its solid growth in the Global Banking & Markets and Asset & Wealth Management businesses propelled the rise. Revenue growth in both areas was 14% YoY and 27% YoY, respectively.
Ariel Appreciation Fund stated the following regarding The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2024 investor letter:
“Shares of global investment bank, The Goldman Sachs Group, Inc. (NYSE:GS), also rose in the period following solid earnings results, highlighted by strength in fixed income, currencies 1 Sindreu, Jon. “The Second Quarter Split the Market.” The Wall Street Journal, July 1, 2024, p. B9. and commodities (FICC) as well as equities trading and better-than-expected investment banking fees. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and working to improve profitability in Platform Solutions by 2025. With the possibility of increased capital requirements from its regulators, GS plans to reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.”
Given Goldman Sachs’s solid performance in its alternatives sector and anticipated margin increase, Jefferies analyst Daniel Fannon maintained his buy rating and $571 price objective for the company. According to Fannon, with new initiatives and fee increases, GS could increase its operating margin in Asset & Wealth Management from 23% in H1 2024 to mid-20% by early 2025.
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company, with 5,658,587 shares worth $2.36 billion.
5. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Investors: 72
The Charles Schwab Corporation (NYSE:SCHW), an American savings and loan holding company, was established in 1986 and offers a range of services, including banking, asset management, wealth management, custody, and financial advising.
About half of the company’s revenue comes from net interest income, and the company is best recognized for its platforms for retail investors and registered investment advisors. As of the end of 2023, it held about $300 billion in deposits.
According to Morningstar analysts, Charles Schwab is doing well in terms of capital and liquidity, and within the next year, earnings should be on a sustainable, rising trajectory.
Growing interest rates have put pressure on Charles Schwab by causing bank deposits to decline and net interest margins to decrease. In order to counter this, the company intends to reduce the size of its bank and transfer excess deposits to third-party banks, which will improve liquidity at the expense of slower growth. According to the analysts, the change may hurt earnings in the short run, but if rates and inflation stay high, the long-term plan could potentially turn out well. While the negative case emphasizes additional earnings concerns brought on by higher-cost funding, the bull case sees Schwab stabilizing by adjusting to a high-rate environment.
Charles Schwab became the biggest retail broker in the US by client assets after acquiring TD Ameritrade, which strengthened its offerings for individual investors and improved trading.
Ariel Appreciation Fund stated the following regarding The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2024 investor letter:
“Shares of global investment bank, The Goldman Sachs Group, Inc. (NYSE:GS), also rose in the period following solid earnings results, highlighted by strength in fixed income, currencies 1 Sindreu, Jon. “The Second Quarter Split the Market.” The Wall Street Journal, July 1, 2024, p. B9. and commodities (FICC) as well as equities trading and better-than-expected investment banking fees. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and working to improve profitability in Platform Solutions by 2025. With the possibility of increased capital requirements from its regulators, GS plans to reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.”
The company anticipates profitability in late 2024, supported by stabilization of the net interest margin and expense savings. With Schwab’s solid market position and growth prospects in mind, DBS analyst Ken Shih set a price target of $82.
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company, with 5,881,507 shares worth $2.66 billion.
4. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Investors: 83
Currently ranked as the fourth-largest bank in the United States, Wells Fargo was established in 1852. It operates in 35 countries around the globe and provides a wide range of financial services and products. The US-based financial firm offers personalized help from financial advisors along with an abundance of resources for financial education.
Wells Fargo & Company (NYSE:WFC) beat consensus projections for both the top and bottom lines in its second-quarter 2024 earnings. However, the company’s net interest income, a crucial metric for banks, underperformed, and it has been declining every quarter since Q4 2022. The bank’s net interest income, which is calculated as the difference between interest revenue received from loans and interest expenses, decreased by 9% year over year and is currently expected to shrink by 8-9% this year.
Under Scharf, one of the “Best Financial Services Stocks To Buy Now” has bolstered its trading and investment banking capabilities by bringing on board a few senior executives from rival companies. Wells Fargo’s investment banking income climbed by 38% to $430 million YoY in the second quarter of 2024.
Despite its growth, the company remains limited by a $1.95 trillion asset cap and ongoing regulatory scrutiny.
As part of the investor “bull thesis” going into the quarter, analysts projected better net interest income; hence, management’s revised view for NII is expected to put pressure on the stock, according to Citigroup analyst Keith Horowitz in a note.
Wells Fargo & Company (NYSE:WFC) plans to maintain its multi-year restructuring plan, putting an asset cap in place until 2024 and concentrating on cost-cutting measures to boost its efficiency ratio. The bank is also reconstructing its card business, middle-market investment banking, and wealth section.
Natixis Global Asset Management’s Harris Associates is the largest shareholder in the company, with 21,386,721 shares worth $1.27 billion.
3. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Investors: 85
Citigroup Inc. (NYSE:C), the third-biggest U.S. lender, was founded in 1812, is headquartered in New York, and provides financial services and products. Corporate/Other, Institutional Clients Group, and Global Consumer Banking are the segments through which it conducts business.
The US-based company runs both a worldwide commercial banking franchise and a domestic retail banking subsidiary. Services, markets, and banking areas (which were originally grouped under the Institutional Client Group, or ICG) comprise the bank’s commercial operations, which also include large trading, investment banking, international corporate banking, and custody operations. Considering its unmistakable worldwide reach, Citi’s most unique business is its commercial banking segment. The banking company has maintained its position as the bank of choice for international businesses in part because of its extensive global presence.
Citigroup’s complex worldwide operations have made it difficult for the company to keep up with peers, but Citigroup is currently undergoing a strategic realignment. This includes significant actions like splitting up its consumer division in Mexico and putting money back into wealth and commercial banking. The firm may at last become a structurally stronger company.
When compared to other banks, Citi’s solvency, burden, and capitalization are its most crucial factors.
The firm’s shares dropped 2% in Q2 2024 despite the company exceeding analyst forecasts with solid revenue growth in Markets and Investment Banking. The decline was attributed to worries about rising spending and market share. The company also issued a warning, stating that costs for FY 2024 might exceed its estimated range.
Diamond Hill Capital Long-Short Fund stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
The Hold rating given by DBS analyst Lim Rui Wen is a reflection of worries about small growth catalysts and restructuring difficulties. However, analysts also considered 2024 a transitional year for Citigroup Inc. (NYSE:C), as the company becomes leaner under CEO Jane Fraser’s turnaround.
The financial company’s short-term performance may be impacted by high investment costs and ongoing regulatory scrutiny, but the company’s strategic exits and efficiency improvements are meant to boost future profitability.
Warren Buffett’s Berkshire Hathaway is the largest shareholder in the company, with 55,244,797 shares worth $3.51 billion.
2. Bank Of America Corporation (NYSE:BAC)
Number of Hedge Fund Investors: 92
In terms of total assets, Bank Of America Corporation (NYSE:BAC) is now the second-biggest commercial bank in the United States, following the 2008 financial crisis and years of difficulties. The bank is one of the top four credit card issuers and acquirers in the US, has a strong commercial banking franchise, and is a Tier 1 investment bank. It owns the Merrill Lynch franchise, which has developed into one of the top brokerage and consulting businesses in the US and is among the strongest retail branch networks and total retail franchises in the entire country.
Global Banking, Global Markets, Global Wealth & Investment Management (GWIM), and Consumer Banking are BAC’s four primary business segments. By diversifying its business, BAC provides a broad range of banking and nonbank financial services and products while reducing the risk associated with downturns in the market.
Over two billion consumers have benefited from the corporate and individual services provided by the well-known bank’s virtual financial assistant, Erica, since its launch in 2024.
Bank of America Corporation (NYSE:BAC) reported higher-than-expected earnings for the second fiscal quarter of 2024, owing to excellent performance in its investment banking segment as well as solid net interest income. The share price increased by more than 5% YoY as a result of the earnings report, reaching a peak not seen since the start of FY 2022.
ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
Though experts believe the company’s growth potential is supported by its excellent revenue from trading and investment banking as well as its positive net interest income estimates, anticipated rate cuts and rising deposit costs could put pressure on future profitability.
BAC is one of the Best Bank Stocks To Buy in 2024 since it has promising growth potential. As seen by 19 analysts, BAC has a consensus Buy rating with an average price target of $42.39 and an upside potential of 5.61% from the current stock price.
Warren Buffett’s Berkshire Hathaway is the largest shareholder in the company, with 1,032,852,006 shares worth $41.08 billion.
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Investors: 111
As the most profitable bank in the United States, JPMorgan Chase & Co. (NYSE:JPM) is unquestionably one of the “Biggest Financial Firms in the World,” with a market capitalization of $619.19 billion. It is also an industry leader in total assets, dominating both investment and commercial banking. Its standing has been strengthened by its profitable ventures into credit cards and auto loans, as well as thoughtful fintech initiatives. In addition to providing stability in choppy markets, the bank’s sizable Chase consumer banking business and leading investment banking division also help it profit from economic booms through increased IPO and acquisition activity. This diversified strength positions the company as a powerful player in varying economic situations.
It is divided into four main sections: asset and wealth management, corporate and investment banking, commercial banking, and consumer and community banking. JPMorgan is regulated in multiple countries where it conducts business.
Recently, JPMorgan Chase & Co. (NYSE:JPM) payments extended its partnership with PopID to facilitate in-store biometric transactions throughout the US. Faster transactions are possible with this pay-by-face option because credit cards and phones are not required.
Analysts are showing interest in the financial company. Piper Sandler kept its Overweight rating and $230 price target on the US-based company, citing the bank’s ability to beat competitors despite market challenges. The company praised JPM for its effective risk profile, leading profitability, and conservative forecast, and it did not anticipate any significant changes to its outlook.
Conversely, Deutsche Bank kept its $235 target price for the firm after downgrading it from Buy to Hold. Though it sees minimal opportunity for further gain, their analyst notes JPM’s year-to-date performance and commends the company’s good credit quality and higher-than-expected net interest income. Major institutions, including JPMorgan, predict that the Federal Reserve will lower interest rates in September in reaction to rising unemployment. The downgrade is also due to this.
Carillon Eagle Growth & Income Fund stated the following regarding JPMorgan Chase & Co. (NYSE:JPM) in its first quarter 2024 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) contributed positively to performance following solid financial results and positive guidance for the remainder of 2024. Moreover, growing chatter around rising capital markets activity likely contributed to the stock’s strong performance relative to other banks. Recall that JPMorgan has a robust capital markets franchise.”
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company, with 12,740,431 shares worth $2.58 billion.
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