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2 Bank Stocks I'd Buy Right Now

By Eric Volkman – Oct 25, 2016 at 12:25AM

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Both of these financial stalwarts offer plenty of bang for your investment buck.

We're still some time away from the end of the year, but it's safe to say that 2016 probably won't be a banner year for banking stocks. Still-thin interest rates, fallout from the Brexit vote earlier this year, and concerns about consumer borrowing have dampened share prices in the sector. The recent Wells Fargo (NYSE: WFC) scandal hasn't helped the reputation of the sector, either.

But the current unpopularity of banking stocks opens good opportunities to buy shares of some of the more solid lenders. Here are two banks I think are more than worthy of investment these days.

Image source: Getty Images

JPMorgan Chase

Of the "big four" monster incumbent banks, JPMorgan Chase (JPM 1.21%) is best in class. Thanks to the Wells Fargo debacle, the company is now the largest of the quartet in terms of market capitalization in the U.S. JPMorgan Chase also tops the rest of the pack in terms of trailing 12-month revenue and net profit.

The lender's key metrics are all going in the right direction. In its recently released Q3 results, it posted an encouraging 8% year-over-year improvement in total revenue (to almost $25 billion). Net profit dropped by the same amount (to nearly $6.3 billion), but that slide is on the back of a $2.2 billion tax benefit it booked in Q3 2015 that skews the comparison. Regardless, the resulting per-share net of $1.58 was well above the $1.39 expected by the market; the top line figure also beat estimates.

Investment banking was the secret sauce flavoring those tasty results. JPMorgan Chase has one of the most robust IB operations among the incumbents. The segment is rather boom-and-bust -- and in Q3 it was very much the former, with the bank posting its best-ever Q3 revenue figure. To me, the company's investment banking arm isn't overwhelming relative to its size, so its downside is mitigated by the company's other operations. And when it does well, as it did this past quarter, the upside can juice overall results nicely.

Finally, in a sector that can be fairly stingy with dividends, JPMorgan Chase pays out well. The company's distribution currently yields 2.8%, second only among the Big Four to beaten-down Wells Fargo, and notably higher than the payouts of Bank of America and Citigroup.

Capital One Financial

Over the years, Capital One Financial (COF 2.10%) has grown from Yet Another Credit Card Issuer to a multifaceted financial services company. Although it still draws the bulk of its net revenue from card operations, those banking activities have grown to comprise nearly 40% of that line item these days.

Auto loans in particular have been a good lending segment of late: On the back of growing vehicle sales, the company increased its originations by 20% on a year-over-year basis in its most recently reported quarter.

Speaking of that period, although Capital One missed expectations for both net revenue and net profit, the former advanced a robust 10% (to $6.25 billion). And the 4% decline in adjusted bottom line wasn't too worrying, because the company still landed well in the black at $979 million. Total assets saw a 9% rise, while deposits went north at a 6% pace.

The company's business mix is unique among the nation's top lenders, if not necessarily a hit with the market lately because of worries about credit card risk (and, to a lesser degree, the impact on auto lending from vehicle sales growth, which is starting to slow). Those concerns are valid, but in the card sphere I feel that Capital One is a veteran issuer that has proven its worth as a risk manager. As for auto loans, its originations are outpacing recent vehicle sales growth, so I'd fully expect the company to keep performing in that segment.

Meanwhile, like JPMorgan Chase, Capital One doesn't skimp on the dividend. Its payout annualizes to $1.60, good enough for a 2.2% yield -- relatively generous for the banking sector.

Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool recommends Bank of America. 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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