In this article, we will discuss the 9 best European bank stocks to invest in. If you want to explore similar stocks, you can also take a look at 5 Best European Bank Stocks to Invest In.
Double Digit Inflation in Europe
Russia’s invasion of Ukraine has had severe implications on the global economy. However, it has affected any other part of the world more than it has shaken up Europe. Europe’s energy crisis, primarily triggered by the Ukraine war, has been the major driver for runaway inflation in the Eurozone region. In 2022, the ECB raised interest rates in Europe for the first time in a decade to combat rampant inflation. However, even after raising interest rates by 200 basis points in a row, inflation in the region is not being tamed. In October 2022, the annual euro area inflation rate was 10.6%, up from 9.9% in September. The highest contributing factor was energy, which rose 4.44% year over year in October, followed by food, alcohol, and tobacco, which rose 2.74% year over year in the month.
Inflation Expected to Weaken in November
According to Eurostat’s Flash Estimate for November 2022, inflation in the euro area seems to be easing. Euro area annual inflation is expected to record a reading of 10% in November, down from 10.6% in October. The energy index remains the highest contributing factor to euro area inflation. However, it is expected to fall to 34.9% in November, down from 41.5% in October. The food, alcohol, and tobacco index is expected to record a 13.6% year-over-year increase, up from 13.1% in October.
While it seems that progress against inflation has been made in Europe, the annual inflation rate is still at double digits and roughly 5 times the ECB’s goal of 2%. In order to restore price stability, the ECB is expected to continue to raise interest rates, which is good news for European banks. This article will look at some of the best European bank stocks to buy now that are expected to benefit from the rising rate environment like their American counterparts which include Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Morgan Stanley (NYSE:MS).
Photo by buian_photos on Unsplash
Our Methodology
We screened for major European banks that hold dominant market positions and have financial strength. We gave special attention to the market sentiment around each bank and only included stocks that had position analyst and investor sentiment. Along with each stock, we have mentioned analyst ratings, the hedge fund sentiment, and salient features that make them good investment options. These stocks are ranked according to their popularity among elite hedge funds, from least to most.
Best European Bank Stocks to Invest In
BNP Paribas SA (OTC:BNPQY)
Number of Hedge Fund Holders: N/A
BNP Paribas SA (OTC:BNPQY) is a French multinational banking and financial services company headquartered in Paris. It is one of the largest banks in the world, with operations in over 65 countries and total assets of €2.95 trillion, as of September 30, 2022. The stock is currently trading at bargain levels and is offering investors an attractive buying opportunity. As of December 1, BNP Paribas SA (OTC:BNPQY) is trading at a PE multiple of 7x and is offering investors a forward dividend yield of 12.68%. The bank is profitable and efficient at making profits for shareholders. According to the bank’s balance sheet, BNP Paribas SA (OTC:BNPQY) has a trailing twelve-month operating margin of 32% and an ROE of 8.15%. The stock is one of the best European bank stocks to invest in.
On November 3, BNP Paribas SA (OTC:BNPQY) posted earnings for the third quarter of fiscal 2022. The company reported earnings per share of $1.06 and outperformed EPS estimates by $0.10. The company’s revenue for the quarter amounted to $12.01 billion and beat Wall Street consensus by $16.52 million.
Wall Street is bullish on BNP Paribas SA (OTC:BNPQY). On November 4, RBC Capital analyst Anke Reingen raised his price target on BNP Paribas SA (OTC:BNPQY) to EUR 67 from EUR 65 and reiterated an Outperform rating on the shares. This November, Barclays analyst Amit Goel upgraded BNP Paribas SA (OTC:BNPQY) to Overweight from Equal Weight and raised his price target of EUR 70 from EUR 60.
As of September 30, Fisher Asset Management is the largest investor in BNP Paribas SA (OTC:BNPQY) and owns more than 26.8 million shares of the company. The fund’s position is valued at $572.5 million.
Like BNP Paribas SA (OTC:BNPQY), Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Morgan Stanley (NYSE:MS) are also trading at bargain levels and are presenting an optimal buying opportunity for investors.
8. Lloyds Banking Group PLC (NYSE:LYG)
Number of Hedge Fund Holders: 8
Lloyds Banking Group PLC (NYSE:LYG) is a major financial services group based in the United Kingdom. The company operates through three segments: Retail, Commercial Banking, and Insurance & Wealth. At the close of the third quarter of 2022, 8 hedge funds were long Lloyds Banking Group PLC (NYSE:LYG) and disclosed positions worth $57.7 million. This is compared to 9 positions in the preceding quarter with stakes worth $31.6 million.
Lloyds Banking Group PLC (NYSE:LYG) is a profitable bank that is trading cheaply relative to earnings. As of December 1, Lloyds Banking Group PLC (NYSE:LYG) is trading at a PE multiple of 8x and is offering shareholders a forward dividend yield of 4.73%. The company has a trailing twelve-month operating margin of 48.86% and an ROE of 9%. Lloyds Banking Group PLC (NYSE:LYG) is placed on our list of the best European bank stocks to buy now.
On October 28, JPMorgan analyst Raul Sinha raised his price target on Lloyds Banking Group PLC (NYSE:LYG) to 58 GBP from 56 GBP and maintained an Overweight rating on the shares. This November, RBC Capital analyst Benjamin Toms upgraded Lloyds Banking Group PLC (NYSE:LYG) to Outperform from Underperform and raised his price target to 57 GBP from 44 GBP.
As of September 30, Arrowstreet Capital owns over 18 million shares of Lloyds Banking Group PLC (NYSE:LYG) and is the largest shareholder in the company. The fund’s stakes are valued at $32.3 million.
7. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA)
Number of Hedge Fund Holders: 8
Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) is a leading Spanish bank that provides retail banking, wholesale banking, and asset management services. The company has operations in Spain, Mexico, South America, the United States, Turkey, Asia, and the rest of Europe. On October 28, Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) announced earnings for the third quarter of 2022. The company reported a non-GAAP EPS of EUR 0.29 and a net interest income of EUR 5.26 billion, up 40.3% year over year. As of December 1, Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) has gained 5.82% year to date.
Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) is an undervalued and profitable European bank stock to invest in. The stock is trading at a PE ratio of 5.91, as of December 1, and is offering a forward dividend yield of 7.91%. The company has a trailing twelve-month operating margin of 55.63% and an ROE of 12.30%.
This November, JPMorgan analyst Sofie Peterzens raised her price target on Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) to EUR 6.90 from EUR 6.70 and reiterated a Neutral rating on the shares. On November 18, RBC Capital analyst Benjamin Toms raised his price target on Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) to EUR 6.75 from EUR 6.50 and maintained an Outperform rating on the shares.
At the end of the third quarter of 2022, 8 hedge funds disclosed ownership of stakes in Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA). The total value of these stakes amounted to $277.25 million, up from $262.10 million in the previous quarter with 7 positions. The hedge fund sentiment for the stock is positive. As of September 30, Fisher Asset Management is the top investor in the company and has disclosed a position of $239.96 million. The fund owns over 53.9 million shares of the company.
Here is what Artisan Partners had to say about Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) in its third-quarter 2022 investor letter:
“We ended our Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) and Burlington Stores investment campaigns during Q3. Banco Bilbao Vizcaya Argentaria engages in retail banking, asset management, private banking and wholesale banking in Mexico, Spain, South America, the United States, Turkey and other parts of Eurasia. A new CEO is leading several new initiatives—exiting the US market and using the proceeds to repurchase stock, refocusing the company on higher growth emerging markets, utilizing technology to right size the workforce and driving an increasing amount of business through its digital channel (mobile banking, direct deposits, etc.). The company has made progress toward these internal initiatives, though its exposure to credit issues via its high emerging markets exposure (Mexico, Turkey and South America were >60% of revenue in 2021) could outweigh these profit cycle tailwinds in the periods ahead as elevated inflation and a waning global economy weigh on consumers’ savings in these markets. Given our inability to determine when these macro headwinds could abate, we harvested our position.”
6. HSBC Holdings plc (NYSE:HSBC)
Number of Hedge Fund Holders: 10
HSBC Holdings plc (NYSE:HSBC) is a UK-based financial services company that provides banking and financial services worldwide. The company operates through three segments: Wealth & Personal Banking, Commercial Banking, and Global Banking & Markets. HSBC Holdings plc (NYSE:HSBC) has a prominent presence in over 63 countries across the globe and is ranked among the best European bank stocks to buy now. As of December 1, the stock has gained 9.73% over the past twelve months.
On October 27, Deutsche Bank analyst Robert Noble raised his price target on HSBC Holdings plc (NYSE:HSBC) to 650 GBP from 570 GBP and maintained a Hold rating on the shares. This October, Keefe Bruyette analyst Edward Firth double-upgraded HSBC Holdings plc (NYSE:HSBC) to Outperform from Underperform and raised his price target to 630 GBP from 500 GBP.
At the close of the third quarter of 2022, 10 hedge funds were long HSBC Holdings plc (NYSE:HSBC) and held collective stakes of $144.5 million in the company. This is compared to 14 hedge funds in the previous quarter with stakes worth $138.5 million. As of September 30, Renaissance Technologies is the largest shareholder in the company and holds a position worth $61.88 million.
Some of the largest banks in the world include HSBC Holdings plc (NYSE:HSBC), Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Morgan Stanley (NYSE:MS).
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Disclosure: None. 9 Best European Bank Stocks to Invest In is originally published on Insider Monkey.