Financial and banking stocks were not immune to the effects of the COVID-19 pandemic. In fact, the S&P Bank ETF (NYSEARCA: KBE) is down over 16% year-to-date (YTD) and revenues are down this year across the board, aided in no small part by the Fed’s continued support of near-zero interest rates. With the pandemic battering small businesses and individual finances, the banks have boosted their reserves in anticipation of the many defaults due to come; on the flip side, they benefited from trading in the volatile market this year.
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1. JPMorgan Chase
As the largest bank in the U.S., JPMorgan Chase (NYSE: JPM) is seen by investors as a window into consumer spending and corporate sentiment. The market shifts caused by the pandemic aided the company as it saw its Investment Banking division revenue go up nearly 900% in Q3 year-over-year (YoY), to a little over $2 billion. It also saw its highest EPS ever at $2.92. Along with Berkshire Hathaway holding a 7% stake in the company, JPMorgan Chase has recently seen its highest position count in hedge fund portfolios with 123.
As a result of low-interest rates, the bank cut its net interest income outlook to $55 billion for 2020. Regardless, JPMorgan Chase has really strong financials and is expected to withstand the damage done by the pandemic in even the worst of cases, passing all scenarios with the lowest possible Common Equity Tier 1 (CET1) score of 9.5% (4.5% is the minimum required on this test that measures crisis resistance). As of November 10, JPMorgan Chase is trading at $116.52 and is projected to reach nearly $205 in a year’s time.
2. Citizens Financial Group
Although not as large as JPMorgan Chase, Citizens Financial Group (NYSE: CFG), holds a similarly impressive CET1 score of 9.8% and is strong enough to withstand pandemic-related headwinds. The company has raised its quarterly dividend payment over 77% in the last two years to $0.39 and has a payout ratio of nearly 58% as of the last quarter; additionally, Citizens’ Total Debt to Equity Ratio is .45 (anything below 1 is considered outstanding). In 2020 Q3, the firm hit its EPS estimates of $0.73 and exceeded revenue by $50 million at $1.79 billion.
This year, net interest income for the company has remained relatively flat, at around $1.1 billion, which is impressive in a near-zero rate environment. Currently, Citizens’ price-to-book ratio is $0.58, indicating that it’s undervalued. Further, its stock price is down nearly 15% YTD. This company has a solid financial profile and is poised to grow as a vaccine is introduced and the pandemic subsides.
Although not a bank stock, Square (NYSE: SQ) is in the financial services sector and it’s good to mix things up when investing. The company’s stock price is up over 97% YTD and it has seen its revenue grow over 270% in the last 5 years. The company, launched by Twitter co-founder Jack Dorsey, holds around 60% of the point-of-sale (POS) device market. With this position, the company is cleaning up during the pandemic as its cashless sellers across the U.S. are up from 5.4% pre-pandemic to 13.4%; cash transactions are down from 37% pre-pandemic to 33%.
While numbers aren’t available, many people took advantage of Square’s direct deposit feature to receive their stimulus checks and this added more users to the company’s ecosystem. On the stimulus front, the company was also approved by the U.S. Treasury to offer Paycheck Protection Program (PPP) loans. Square’s innovative investment in Bitcoin netted the company over $1.6 billion in revenue last quarter, nearly 54% of its total revenue. This rock star company’s stock price has outperformed its competitors by over 250% YTD and is projected to reach $300 in one year.
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