Banks kicked earnings season off with big headline results. After their beats, experts say these 4 stocks in the space are the best picks right now.
Earnings season started off with a bang this week as big banks delivered massive beats.
JPMorgan (NYSE: JPM) kicked things off on Wednesday, delivering better-than-expected profit and revenue on robust trading results. The bank posted first quarter profit of $14.3 billion, or $4.50 a share—versus estimates for $3.10 per share—including a $1.28 per share benefit from releasing $5.2 billion in funds set aside for loan losses that didn’t materialize, while revenue came in at $33.12 billion.
“Overall, this was a great quarter for JPMorgan,” said Octavio Marenzi, CEO of consultancy Opimas. “It is now increasingly clear that the bank over-reserved, and that money is now flowing back into its earnings, concealing some of the weakness in consumer banking.”
Goldman Sachs (NYSE: GS) was next up, posting earnings per share of $18.60 on revenue of $17.7 billion, while analysts had expected a reading of $10.22 earnings per share on revenue of $12.6 billion. Wells Fargo (NYSE: WFC) also reported a beat with earnings of $1.05 per share on revenue of $18.06 billion, compared to estimates of $0.70 earnings per share on venue of $17.5 billion.
Citigroup (NYSE: C) and Bank of America (NYSE: BAC) posted first quarter results on Thursday, with the former reporting that its equities desks lifted the firm to a record quarterly profit and the latter topping estimates with earnings of $0.86 per share on revenue of $22.9 billion while analysts had expected a reading of $0.66 earnings per share on revenue of $22.1 billion.
Big banks stronger-than-expected results “astonished” Jim Cramer, who said the group is on “another plane.”
“If we do get what everyone thinks we’re going to get, which is that [Federal Reserve Chairman] Jay Powell is going to be forced to give us a rate hike, the leverage of these companies – I’ve got to tell you, none of these companies is expensive. Not one of them,” Cramer said.
Cramer highlighted one name in particular: “JPMorgan… what a buy. I mean, come one. They did an amazing quarter. And I just think that these are the stocks we’ve got to focus on.”
“I am still bullish on the financials, especially the investment banks like Goldman Sachs and the turnaround plays like Wells Fargo,” Cramer added. “After these numbers, the banks have gotten dirt cheap. Believe me, they will not stay that way.”
Pivotal Advisors CEO and chief investment officer Tiffany McGhee agrees that JPMorgan and one other name look like solid bets in the space now.
“There’s a difference between these banks,” McGhee said. “And especially when it comes to JPMorgan and Goldman Sachs – These guys have diversified revenue, consistent dividends. I’m looking at these, and I’ve actually viewed these as real staples in our client portfolios for quite some time, when you look at what they did last year, not cutting their dividend in a time of real stress, when you look at what saved them in terms of revenue last year, their diversified income, trading revenue, also some asset management revenue and advisory revenue.”
Sarat Sethi, managing partner at Douglas C. Lane & Associates, says JPMorgan is “the gold standard” in the sector, but says there is one other stock in the space to watch.
“What I’m looking for is who’s going to give me upside in the next two to three years, and I think the company you want to look at is Morgan Stanley (NYSE: MS),” Sethi said. “They’ve really restructured their whole business. Their asset management business is going to give them huge leverage, and I think that’s where you want to be.”