Bank stocks have not exactly been a standout of the recent market rally. Over the past month, the financial sector has underperformed the S&P 500 by more than a full percentage point, thanks to recession fears and interest rate uncertainty.
However, there could be some bank stocks worth a closer look as we head into the second half of the year. Read on to find out why our Fool.com contributors have their eyes on Goldman Sachs (GS 1.53%), JPMorgan Chase (JPM 0.62%), and Bank of America (BAC 1.35%).
A huge capital return and lots of growth potential
Matt Frankel, CFP (Goldman Sachs): I've written about Goldman Sachs' long-term potential several times, but after the recent stress test results were released, the bank has jumped to the top of my watch list.
After it was announced that regulators had no objection to the bank's capital plan, not only did Goldman Sachs just give shareholders a big dividend raise that boosts the stock's yield to 2.5%, but the bank also announced a massive $7 billion stock buyback over the next 12 months. To put this in perspective, this translates to nearly 10% of all outstanding shares. With Goldman trading for a roughly 5% discount to its book value, I'd say that this should be a pretty effective way to build shareholder value.
In addition, the big bank is investing heavily in several key areas of its business. For example, Goldman announced last month that it would acquire United Capital Financial Partners in an effort to grow its already-impressive wealth management business.
And don't forget Goldman's consumer banking growth. Not only has the Marcus personal lending and deposit account platform been extremely successful so far, but this could just be the tip of the iceberg when it comes to Goldman's consumer banking ambitions. It's already been reported that Goldman has a "Main Street" investment platform in the works, and the company is about to jump into the credit card game as Apple's co-branding partner, with the new Apple Pay card set to be released later this summer.
A bank that's big, profitable, and growing
Matthew Cochrane (JPMorgan Chase): JPMorgan is consistently one of the most profitable of the big domestic banks, boasting a 16% return on equity in Q1 2019, well above the 10% threshold that investors generally consider to be good. The bank's first-quarter revenue rose to $29.9 billion, a 5% increase year over year, and earnings per share (EPS) grew 12% to $2.65. Despite the healthy profitability and growth, however, JPMorgan's shares sport a P/E ratio of less than 12.
Though the bank recently shuttered Finn, its digital-only bank targeted at millennials, that was apparently due to the massive success of its online and mobile efforts for its flagship brands. Chase now has 49 million active digital users and 33 million active mobile users, more than any other domestic bank, all while growing faster by actual users, too. Using Chase's mobile app, users can move money with Chase QuickDeposit or Zelle, pay bills, set up recurring payments, use autosave functions, set goals, and find tips for better money management.
Being such a big entity has advantages, as it gives JPMorgan a large war chest to invest in technology and customer acquisitions. This year, CFO Marianne Lake said the bank expects to spend about $11.5 billion on technology, half of which is earmarked for innovation to "change the bank."
Bank on B of A
Dan Caplinger (Bank of America): The financial industry has had to endure a lot of ups and downs over the past decade. On the whole, though, Bank of America has done a good job of recovering from the worst of times in the late 2000s. By highlighting the importance of continuing to grow but only at a pace that's sustainable over the long run, CEO Brian Moynihan and his team have been able to keep Bank of America's core retail banking operations humming along and producing reliable results.
Bank of America has nevertheless had to fight hard in order to keep its competitors at bay, and the recent pause from the Federal Reserve and subsequent inversion of the yield curve has many bank shareholders nervous about the future. Despite those concerns, B of A is innovating to keep up with its peers. Its new Erica digital assistant hopes to lure in younger customers who've been least likely to respect Bank of America's legacy reputation in the aftermath of the financial crisis. With more than 7 million users already, Erica is becoming extremely popular, and being a first-mover could help B of A give customers a reason to walk in its doors rather than going to a competitor.
Investors currently hope that Bank of America can survive the current yield curve inversion and offer higher dividends in the Fed's annual review of capital plans. Good news could be a catalyst for further gains for B of A.