15 Reasons to Invest in Bank Stocks Right Now

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

When I began investing, bank stocks piqued my curiosity, but they definitely seemed too exotic and too arcane. So, for a long time, I stuck more with consumer-goods type companies, like Starbucks, Whole Foods, and Chipotle.

I'm still in those companies, and they're performing as well as ever, but I've also made the leap into bank stocks, and my portfolio is all the better for it. Banks have actually become some of my best performers.

So as a salute to investable banks, and maybe with the hope of turning others on to the good investment direction I've found, here are 15 rapid-fire, easy-to-digest reasons to get some bank stocks into your portfolio right now (in no particular order).

1. Valuations on many banks are very low: The price-to-book ratio for Bank of America (NYSE: BAC  ) is an absurdly low 0.63. Citigroup's (NYSE: C  ) P/B is only slightly higher: 0.75.

2. "Too big to fail" still lives: Why is this a good reason to buy into a bank? The implicit guarantee of TBTF means that the federal government simply cannot let certain banks fail, so your investment is much safer than it would otherwise be.

For instance, no administration will ever be able to let JPMorgan Chase (NYSE: JPM  ) -- the nation's biggest bank -- fail, no matter what crazy thing it might do to get itself into trouble.

3. Balance sheets are cleaner than ever: The housing boom and subsequent crash destroyed the balance sheets of many big banks, like Citi's and B of A's, but four-plus years on the banks have made great progress in dealing with their toxic mortgage debt.

4. The housing market is starting to recover: Banks can still make a lot of money the old-fashioned way: lending money and charging interest, and America remains at heart a home-ownership society, even after the most recent boom and bust.

5. The financials sector has serious momentum: In 2012, the financials sector was the best performing sector of the S&P 500. Investors are starting to realize what they've been missing, and are therefore driving up share prices.

6. Rising profits: In the fourth quarter, Goldman Sachs reported net-income growth of 185.5%. Wells Fargo (NYSE: WFC  ) reported net-income growth of 23.9%. Those are big numbers.

7. Great stress-test results: For 2013, 17 of the 18 financial institutions the Federal Reserve ran through its simulated, severe economic downturn passed, demonstrating once again how far banks have come since the crash.

8. Dodd-Frank is in effect: The 2010 Wall Street Reform and Consumer Protection Act is some of the most far-reaching and comprehensive bank-reform legislation passed since the Great Depression. Well-regulated banks make for safe, stable banks, and therefore better investments.

9. Banks are still viewed with suspicion post-crash: This despite the fact the banks are stronger than ever, which is all the more reason to get in now. And banks are only getting stronger and will increasingly be seen as a profitable way to invest.

10. Many banks already pay solid dividends: Wells Fargo pays 2.7%, JPMorgan and PNC Financial (NYSE: PNC  ) each pay 2.4%, and U.S. Bancorp pays 2.3%. Not too bad for one of the oldest business models in existence.

11. Rising dividends and share buybacks: Many of the banks that just went through the Fed's stress tests also had their proposed capital plans approved, leading the way for bigger dividends, share buybacks, or both.

12. Reasonable price-to-earnings ratios: Citi has a P/E of 18, but even that's on the high side. JPMorgan sports a P/E of just 9.4, Goldman Sachs 10.53, and Wells Fargo just 11.1.

13. A solid crop of CEOs: Like them or not, JPMorgan's Jamie Dimon and Goldman Sachs' Lloyd Blankfein are two of the sharpest knives in the banking block. Both are excellent risk managers, even given -- for Dimon -- the London Whale.

Citi CEO Michael Corbat also seems to be just what his superbank needs: a buttoned-down, conservative banker who will do what's in the best interest of the bank, even if shareholders don't get things like dividend increases or share buybacks.

14. Rising return on equity: A classic metric for measuring bank performance from an investor perspective, ROEs are generally on the rise, as banks are slowly but surely figuring out how to make money in a post-crash, post Dodd-Frank world.

15. Fast-growing deposits: Again, this is making money the old-fashioned way. But as banks look for ways to make money in safer, more stable ways -- and ways that conform to new, stricter regulations -- deposits still matter.

Foolish bottom line
Banks are back: bigger, stronger, more stable, and better regulated than ever. This makes them an excellent place to invest, and it could be just the diversification your portfolio needs. Banks are just plain fun to research and look into, as well. I'm glad I finally looked into them, and I think you will be, too. 

Here's a pitch for one of my favorite banks, and one The Motley Fool has a new premium report out on, as well. The bank is JPMorgan Chase, and the report is written by Ilan Moscovitz -- The Motley Fool's senior banking analyst and JPMorgan specialist.

In it, you'll learn where the key opportunities for the superbank lie, where its core growth will come from, and the potential business risks. You'll also get an analysis of its leadership team. For immediate access, simply click here now.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2329386, ~/Articles/ArticleHandler.aspx, 9/29/2016 7:58:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:00 PM
BAC $15.38 Up +0.09 +0.59%
Bank of America CAPS Rating: ****
C $46.87 Up +0.50 +1.08%
Citigroup CAPS Rating: ***
JPM $66.71 Up +0.35 +0.53%
JPMorgan Chase CAPS Rating: ****
PNC $89.41 Up +0.86 +0.97%
PNC Financial Serv… CAPS Rating: ****
WFC $45.31 Up +0.22 +0.49%
Wells Fargo CAPS Rating: ****