8 bank stocks to buy before the third quarter and one with up to 32% increase: BofA

  • Equities have recovered after a difficult start to the month and volatility is on the decline.
  • Bank stocks have beaten the broader market in the last few sessions leading up to the third quarter earnings season.
  • Bank of America has named eight bank stocks that are attractive and may be undervalued.

Stocks are gaining ground as the highly anticipated third quarter earnings season approaches after weeks of choppy trading and a lull in substantial news.

The S&P 500 is up 2.4% in October and is expected to close in the green for the fourth time in five days despite a volatile start to the month. Volatility, as measured by the CBOE Volatility Index (VIX), is down 21% since September 30 as traders take a deep breath and worry less about the impressive list of risks that stocks face in the last quarter of the year.

But as the broader market has recently picked up strength, bank stocks have shamed their peers. The SPDR S&P Bank ETF (KBE), an exchange-traded fund that tracks bank stocks, has jumped 13.4% since hitting a near-term low on September 21, beating the modest advance of 1.3 % of the S&P 500 during the same period.

The outsized gains in bank stocks follow the surprisingly bearish sentiment shared by the

Federal Reserve
at his September 22 meeting, where he hinted he could start cutting his bond purchases as early as November. The move, which will coincide with higher interest rates, took many market players off the line and led to a massive sell-off of 10-year US Treasuries.

Expect the bank stocks party to continue into the third quarter, wrote a team of Bank of America research analysts led by Ebrahim Poonawala in an October 8 memo.

Higher interest rates improve bank profitability, the threat of the COVID-19 Delta variant appears to be easing as cases decline, and regular earnings updates will reduce “event risk” or unexpected losses, wrote Poonawala. In addition, a constantly improving macroeconomic environment should increase the actions of economically sensitive banks.

“We believe the rally in bank stocks will continue as the third quarter earnings season exits, as Delta’s economic impact appears to be fading and interest rates rising,” Poonawala wrote.

The optimistic management outlook for the banks is essential if the industry rally is to continue. Spending could be higher than expected, Poonawala wrote, based on further intra-quarter updates from large-cap banks that he said could foreshadow low spread income and loan growth. Still, Bank of America’s profit estimates for banks do not deviate far from the consensus.

“We would expect [management] the outlook on loan growth / spread income and macros will be critical for the stocks we cover, ”Poonawala wrote. try to assess the appetite of consumers / businesses to spend. “

Below are eight bank stocks that Bank of America says are “positively biased” as the third quarter earnings season approaches. Also included are each stock’s ticker and market cap, along with the price target, upside percentage and commentary from Bank of America, as well as upside and downside risks.

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