Financial stocks seemed ripe for a rally in 2023, as rising interest rates triggered by the Fed in its fight against inflation tend to help bank profitability ratios. But the sector suffered a massive setback in mid-March as first Silicon Valley Bank and then Signature Bank of New York fell into receivorship with shocking rapidity. For longer-term investors, however, this selloff may have presented an opportunity for an entry point.
What Is the Best Financial Stock?
While not all financial stocks are good investments — and there is no single “best financial stock” for all investors — here are three that you may consider discussing with your financial advisor as potential long-term investments.
1. JPMorgan Chase (JPM)
- Price: $127.18
- Market cap: $373.159 billion
JPMorgan Chase is the largest bank in America. As such, if you’re a believer in the prosperity of America’s banking sector, you should likely add some JPM to your portfolio. As the massive bank has its hands in every subsector of the industry, from credit cards and personal checking accounts to construction loans and home mortgages, the trends that support the banking industry as a whole apply even more so to Chase.
Analysts have a consensus “strong buy” on the stock, with a 12-month price target of $156.87. That suggests a 23% gain over current levels over the next year. In the meantime, the stock pays a solid 3.15% dividend yield.
2. Bank of America (BAC)
- Price: $27.64
- Market cap: $216.301 billion
Right behind JPMorgan Chase, Bank of America, Member FDIC, ranks as the second-largest bank of America. Even when times are hard in the American economy, business goes on. Companies need construction loans, home buyers need mortgages and average Americans need checking and savings accounts along with credit cards and auto loans. Bank of America also owns investment house Merrill Lynch.
As a bank with a national presence, Bank of America is one of the first banks both consumers and businesses turn to when they need peace of mind for their financial needs. The company’s 3.17% dividend yield — and analysts’ consensus “buy” rating, with a 12-month target 44% above current levels — could continue to provide buyers for the stock.
3. US Bancorp (USB)
- Price: $34.79
- Market cap: $54.26 billion
U.S. Bancorp is “only” the fifth-largest bank in the U.S., but that affords it more opportunity to grow than the two market leaders. Analysts understand the bank’s appreciation potential, with a consensus “buy” rating and a 12-month price target that’s a whopping 58% above current levels, at $54.78. The company recently purchased MUFG Union Bank, and analysts feel that the buy should be accretive to earnings once the synergies between the two banks kick in.
U.S. Bancorp also has a quite sizable dividend yield for such a large company, at a whopping 5.28%.
What Is a Financial Stock?
Financial stocks are shares of companies in the financial sector: banking, accounting, credit cards, investing and asset management. Along with those listed above, some examples of financial stocks are Wells Fargo, The Goldman Sachs Group, Visa Inc., Mastercard Inc. and Berkshire Hathaway Inc.
Are Financial Stocks a Good Investment?
While the financial sector has experienced a slump triggered by the failure of Silicon Valley Bank, the future looks bright for these stocks — as long as you can tolerate some risk and invest long-term. These stocks are subject to market changes caused by interest rates, but the best financial stocks recover from downturns and increase in value over time. Market analysts see all three stocks on this list increasing in value over the next year.
If you’re considering investing in a financial stock or two, it’s a good idea to consult with a financial advisor to make sure they fit into your portfolio.
The Bottom Line
Although it’s hard to time the market, history has shown that the best time to invest in quality stocks is when they are down from their highs. While Bank of America, JPMorgan Chase and U.S. Bancorp may still have some near-term troubles, the long-term future of these big-name players seems bright. In the meantime, investors can sit back and collect sizable dividends while they wait for potential capital gains to arrive.
Prices are accurate as of market closing on March 22, 2023.
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Editorial Note: This content is not provided by Chase. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by Chase.