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Markets at Record Highs: 5 Bank Stocks to Bet On

Zacks

It has only been a handful of days into 2018 and the markets are already touching record highs. It looks like the rally will continue for some time.

The Dow Jones Industrial index crossed the 25,000 level for the first time yesterday, while other two major indexes — the S&P 500 and Nasdaq also closed at all-time highs. The primary driving factor is the strong domestic economic data including better-than-expected ADP private sector payroll reading for December 2017, and robust manufacturing and services sector data.

Also, the FOMC Minutes from last month revealed discussions that the new tax act (which was not even finalized at the time of the meeting) will aid GDP given the increase in consumer spending, higher business investments and a steady decline in unemployment rate.

The tax act is expected to result in huge savings and cash repatriation for the companies. But only a few sectors/industries will continue to gain over the longer term, banks being one of them. (Read more: Christmas Comes Early for Bank Stocks: Tax Reform Bill Passed)

Apart from this, the Fed has indicated three more rate hikes this year. This alone is sufficient to improve banks’ financial performance. But anticipated higher inflation driven by tax cut stimulus may lead the central bank to raise the interest rate at a faster pace, as economic growth improves further. Higher rates help banks in expanding their net interest margins, thus driving revenue growth.

All these indicate a stronger economy this year. With banks’ financials directly linked to the health of the nation, they stand out to be clear winners.

Further, reduction in stringent regulations might be implemented soon as part of President Donald Trump’s election promise. While no time frame has been outlined for the execution, the announcement of a bipartisan agreement has helped investors regain confidence. This will help banks in reducing regulatory compliance costs and will likely to lead to a wave of M&As for the banking industry.

Picking the Winning Banking Stocks

The banking industry, as a whole, is likely to gain from the favorable factors. So it is not an easy task to find the potential winners.

Hence, we have taken the help of the Zacks Stock Screener to shortlist stocks that have market capitalization of more than $1.5 billion and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

To further cut short the list, we selected those stocks that have witnessed positive estimate revisions for 2018 over the past four weeks. Also, the stocks have a VGM Score of A or B. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Here are the five stocks that meet the criteria:

Associated Banc-Corp ASB, based in Green Bay, WI, has a Zacks Rank #2 and VGM Score of B. With a market cap of $3.8 billion, the company’s Zacks Consensus Estimate for earnings recorded nearly 1% upward revision for 2018 over the past four weeks.

Hancock Holding Company HBHC, headquartered in Gulfport, MS, has a Zacks Rank #2 and VGM Score of B. The bank’s earnings estimate for 2018 moved 3% upward over the last 30 days. The company has a market cap of $4.1 billion.

With a market cap of $1.5 billion, Heartland Financial USA, Inc. HTLF has a Zacks Rank #2 and VGM Score of B. This Dubuque, IA-based stock has witnessed 2.6% upward earnings estimate revision for 2018 over the last 30 days.

Synovus Financial Corp. SNV, based in Columbus, GA, has a Zacks Rank #2 and VGM Score of B. With a market cap of $5.7 billion, the company’s Zacks Consensus Estimate for earnings recorded 3.1% upward revision for 2018 over the past four weeks.

Zions Bancorporation ZION, headquartered in Salt Lake City, UT, has a Zacks Rank #2 and VGM Score of B. The bank’s earnings estimate for 2018 moved 2.2% upward over the last 30 days. The company has a market cap of $9.8 billion.

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