Global stock markets rallied yesterday on the back of increasing expectations of more policy easing from the Chinese government and strong German trade data that lessens the concerns about a looming global economic slowdown. The Dow Jones Industrial Average was up by over 388 points on Tuesday and is already up by more than 100 points this morning, suggesting that stock markets are ready to resume the longstanding bull run. Therefore, it might be quite opportune to take a look at recent analysts’ upgrades in order to find some buying opportunities in the market. The recent pullback seems to be over, so Deutsche Bank recommends buying higher-quality, large regional banks. In the following article we will discuss Deutsche Bank’s upgrades on the following such stocks: PNC Financial Services Group Inc. (NYSE:PNC), U.S. Bancorp (NYSE:USB), and Wells Fargo & Company (NYSE:WFC).
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
To begin with, Deutsche Bank upgraded PNC Financial Services Group Inc. (NYSE:PNC) to “Buy” from “Hold” and maintained its price target at $105. The diversified financial services company expects to reduce expenses by an additional $100 million this year, and Deutsche Bank analysts believe that the company’s management is likely to pursue even more cost-saving efforts. In addition to that, the analysts tracking PNC consider that the bank is not very exposed to capital markets, which should make it less prone to stock market shocks. The shares of PNC are half-a-percent in the red year-to-date, being hit by the recent market pullback. As a result, Deutsche Bank’s price target yields an upside of over 15% from the current price, so potential investors should at least examine this opportunity. Cliff Asness’ AQR Capital Management, one of the largest equity holders of PNC Financial Services Group Inc. (NYSE:PNC), boosted its stake in the bank to 2.37 million shares during the second quarter.
Moving on to U.S. Bancorp (NYSE:USB), Deutsche Bank upgraded the stock to “Buy” from “Hold”, while the price target remained at $47. It is believed that the shares of USB have been hit by concerns of slowing revenue and high exposure to capital markets. On the contrary, Deutsche Bank claims that USB does not have significant capital markets exposure, has one of the best risk management/credit profiles in the industry, and delivers the highest returns among its industry peers. Therefore, the concerns about global economic growth and a potential rate hike might have impacted the stock, which is down by over 8% since the beginning of the year, too strongly. The upgrade and the stock market’s recovery resulted in pushing the stock higher yesterday. From the pool of 737 hedge funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway is indisputably the largest equity holder in U.S. Bancorp (NYSE:USB), with 85.06 million shares.
Last but not least, Wells Fargo & Company (NYSE:WFC) was upgraded to “Buy” from “Hold”, while Deutsche Bank’s price target on it remained firm at $60. Deutsche Bank suggests that Wells Fargo is well-positioned to undertake more cost savings, while the resulting liquidity might allow the bank to benefit from higher rates. Furthermore, the bank is believed to be less exposed to capital markets than the other banks in the industry, and brokers. It’s also worth mentioning that Deutsche Bank expects Well Fargo to generate better-than-expected third quarter net interest income. Nevertheless, the stock is down by more than 3% year-to-date, being struck by the recent stock market mini-crashes. Meanwhile, the price target mentioned above suggests an upside potential of nearly 14% and this potential is narrowing down considering that the shares of WFC gained nearly 3% yesterday. Yet again, Warren Buffett’s Berkshire Hathaway is the top shareholder of Wells Fargo & Company (NYSE:WFC) within our database, owning 470.29 million shares as of June 30.
Disclosure: None
