Much like the case a year ago, one bank stock tops my personal buy list: SVB Financial Group (SIVB.Q 1.12%), the parent organization of Silicon Valley Bank. With just a couple of weeks to go until 2022, these shares are one of my top performers in the past year, sporting an 80% year-to-date return as of this writing.
Higher interest rates and the threat of inflation beat down most growth stocks this year, but not SVB. Banks do well in a higher rate environment, and that bodes well for SVB in 2022 as well -- not to mention the ongoing expansion of the "innovation economy" that SVB serves. I'm still a buyer.
Rounding out its services for innovative-type clients
SVB is a traditional bank by most measures, except for the clients it serves. The company's niche that started in tech-savvy Silicon Valley has now spread to "centers of innovation around the world." SVB provides banking and lending services to start-ups and other disruptive companies, as well as executives and employees of such outfits and their venture capital investors. As part of the deals it cuts, it often becomes an investor in many of these aspiring disruptors of the status quo, yielding SVB and its shareholders early access to high-growth private companies.
The bank has been busy this year rounding out its suite of services. It acquired Boston Private this past summer to increase its know-how in client wealth management. And just recently, it announced the intention to acquire Wall Street research firm MoffettNathanson, best known for its analysis of technology stocks, for an undisclosed sum. SVB will add the stock analysis firm to Leerink, SVB's investment banking division.
Cheap for the long term
If you're a tech investor but your portfolio has kept getting hammered this past year by inflation and interest rate worries, SVB is a must-see stock. It gets you exposure to high-growth businesses, but with built-in higher rate protection -- since lenders like SVB do well when interest rates increase. Higher prevailing interest rates tend to lower the future value of an investment, but not necessarily for banks since their core income will rise if interest rates go up.
But traditional banking is generally a pretty sleepy business model. However, thanks to SVB's fast-growing clients that are often in need of flexible financing terms, this bank stock offers a little extra. Net income from interest and banking fees is on track to be up by a mid-40% amount this year, and banking fee income up by a low-20% amount.
SVB's preliminary outlook for 2022 (which does not yet include the MoffettNathanson takeover) is pretty darn good after the kind of figures it put up this past year. Management said on the third-quarter 2021 earnings update to expect mid-30% growth in interest income, mid-20% growth in bank fee income, and SVB Leerink revenue to grow at least 19% year over year in 2022. SVB has minimal debt and ample cash and investment reserves, so deploying some of that liquidity to bolster its fast-growing investment banking division makes a ton of sense.
By traditional bank metrics, this is no cheap stock at about 21 times trailing-12-month earnings. But SVB Financial is growing at a brisk pace, benefiting from potentially higher interest rates and from the fast-moving global technology start-up niche it caters to. When it comes to traditional-style banking, SVB is the one and only stock I need for 2022.