Bank stocks often move as a group, although they do better or worse depending on many individual factors. They moved down when inflation and interest rates were high, and they have now moved up since the Federal Reserve said it would begin to cut interest rates this year.
But it would be a mistake to assume they're all the same. Some bank stocks are reporting better performance than others and have better risk management in place to help them succeed under pressure. They also attract different audiences and have different innovation engines.
Bank of America (BAC -0.21%), Ally Financial (ALLY 0.41%), and Nu Holdings (NU 1.66%) are all great bank stocks to buy now. They also all happen to be Warren Buffett stocks, which could give you an extra boost of confidence. If you have $200 available to invest after paying down debt and saving for an emergency, consider investing in these stocks.
1. Bank of America: A consumer-focused banking giant
Bank of America is the second-largest U.S. bank by assets. Most banks have specific niches, and many of the largest ones lean toward investment banking and wealth management. But Bank of America has gotten to the top the old-fashioned way, by attracting the masses with a focus on consumer banking.
That's still its meat and potatoes, and it constantly innovates to upgrade the customer experience and grow this business. That's giving it a boost these days, when people are looking around for high rates on deposits in the current high-interest-rate environment. BofA added 600,000 new checking accounts in 2023, with its 20th consecutive quarter of growth during the fourth quarter, and 4.6 million credit cards.
However, BofA is also growing its wealth management business and global banking businesses. It added a record 40,000 relationships in 2023, a 47% year-over-year increase, and $52 billion in flows of assets under management. Global lending increased 15% over last year, and it captured market share in investment banking, moving up to the No. 3 spot in investment banking fees.
Bank of America is Berkshire Hathaway's second-largest holding, accounting for 9.1% of the Berkshire Hathaway equity portfolio. It pays a dividend that yields 2.9% at the current price, and it's a top value stock to anchor a diversified portfolio.
2. Ally: Capturing the millennial market
Ally isn't one of the U.S.'s biggest banks, but it is the top all-digital bank in the U.S., and it's the top lender for prime auto loans. It's also building up its consumer banking business. Younger Americans prize digital services and an easy-to-use interface, and Ally is pulling market share with its high interest rates.
Ally added $2.3 billion in deposits in 2023, ending the year with $154.7 billion. It had 359,000 new customers, a 13% year-over-year increase, for a total of 3 million. That's an important indication that Ally is resonating with a new crowd who have years of business ahead of them to work with Ally, and Ally is sporting a 97% retention rate. These customers are increasingly adopting more products, which generates higher sales per customer. Ally also had 13.8 million auto loan applications in 2023, higher than in the last five years, with a 30% approval rate due to a robust credit evaluation process.
Ally is feeling macroeconomic pressure, with lower revenue and net income year over year. But if you look at the bigger picture, trends are working in its favor to position it for higher growth as conditions improve.
Ally pays a dividend that yields 3.3% at the current price, and it could be one of the best bank stocks to own over the next few years.
3. Nu: Leading in Latin America
Nu came almost out of nowhere to become the largest digital bank in the world by capital raised, according to Statista, and Berkshire Hathaway was one of its earliest backers. It has reported almost dizzying growth, and it now has more than half of the adult population in Brazil as account holders. As it continues to build up its business in its home country, it has launched in the new, higher-growth regions of Mexico and Colombia.
Revenue increased four-fold over the past two years, and its customer count doubled. That means it's making more money per customer. Average revenue per active customer has consistently increased, surpassing $10 last year, while cost-to-serve has remained relatively constant at around $0.85. That's leading to higher profitability. Nu has reported several quarters of positive net income reaching $303 million in the 2023 third quarter, with a 20% profit margin.
Its credit portfolio continues to grow as well, increasing 26% year over year in Q3 to $19.1 billion, while the cost of funding continues to decrease. Net interest income increased 111% over last year, while net interest margin expanded from 11.1% to 18.1%.
Nu is a hyper-growth stock that comes with the stability of a high-cash bank stock, and now is a great time to buy Nu stock as it climbs.
