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2 Top Bank Stocks to Buy In October

By Matthew Frankel, CFP® and Eric Volkman – Oct 15, 2016 at 9:49AM

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These two banks could be great additions to your portfolio this fall.

Image source: Getty Images.

Low interest rates and other industry headwinds have prevented many banks from realizing their true profit potential. Because of this, it's still an excellent time to hunt for bargains in the industry. Here are two bank stocks in particular that our contributors feel are great buys right now.

The techies' favorite lender

Eric Volkman: SVB Financial Group (SIVB -60.41%) is the holding company of Silicon Valley Bank, and the name gives away the game: It serves the region's up-and-coming tech stars, plus the venture capital firms and other entities involved in that segment.

This makes for a large and robust client base in need of a wide range of services. This has underpinned solid growth in its key metrics over the years, and SVB Financial continues to improve its results. In its most recently reported quarter, the company grew its total interest income by an impressive 16% on a year-over-year basis, while net profit rose by 8%. Net loans saw a beefy 32% improvement, and the deposit base expanded by 6%.

Perhaps not surprisingly, SBV Financial's stock has been a winner over the years. Across the past decade, its total return has easily eclipsed that of both solid regional banks and major incumbents. Meanwhile, recent IPO successes of tech "unicorns" bode well for the sector's enterprises going forward, and the region's favorite bank will surely benefit from the trend.

Down, but not nearly out

Matt Frankel: I love buying stocks in the midst of scandals and other market noise that will ultimately have little effect on the business over the long run. If you haven't guessed yet, I'm talking about Wells Fargo (WFC -0.74%).

To be clear: Wells Fargo behaved badly. The bank's culture of selling as many banking products as possible to its customers caught up to it, and now it's paying the price (both monetarily and in the court of public opinion) for 2 million unauthorized accounts.

However, there are a few things that are important to mention. First, the stock has dropped by 11.6% over the past month and a half, which I think is more than enough of a discount to make up for any uncertainty. The $185 million fine was just a drop in the bucket for Wells Fargo, which generated $5.6 billion in profit during the last quarter alone.

And, it's unlikely that profits are going to suffer much, at least in the short-term, since the fake accounts likely meant little to the bank's bottom line and few account holders are likely to move their business to other institutions due to high switching costs. While Wells Fargo's third-quarter earnings report shows that there was a significant dip in several types of product referrals and in new checking account openings in September, I'm confident that this is just a temporary drop that won't affect long-term profitability.

Finally, don't let the change at the top add to your uncertainty. CEO John Stumpf's departure was what the bank needed to move on from this mess. Besides, I'm reminded of a Warren Buffett quote when he said that he loved Coca-Cola because a "ham sandwich" could run the business. And while this isn't quite an apples-to-apples comparison, the point is that Wells Fargo' core business is still rock-solid, no matter who is at the helm right now. If anything, the separation of the CEO and chairman roles is a big positive factor in terms of accountability going forward.

SVB Financial provides credit and banking services to The Motley Fool. Eric Volkman has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. The Motley Fool owns shares of and recommends SVB Financial Group and Wells Fargo. The Motley Fool recommends Coca-Cola. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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