Bank stocks might seem a bit dull at first glance, but they can actually be a solid cornerstone for your diversified portfolio. That's because many of them provide investors with stability and income through dividends. They can also help investors navigate the ever-changing interest rate environment if you play your cards right.
Bank stocks could benefit from strong tailwinds as we head into 2026, including falling short-term interest rates, which tend to bode well for banks. Not only that, the investment banking sector has benefited from a significant rebound, and powerful tailwinds are expected to continue well into next year.
If you're looking for diversification and want to capitalize on these trends, here are three bank stocks to buy before the year is over.
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A top bank with a fortress balance sheet
JPMorgan Chase (JPM +2.47%) is the largest bank in the United States, with total assets under management exceeding $3.8 trillion. To put that size in perspective, it's nearly 50% larger than Bank of America, and more than Citigroup (C +0.60%) and Wells Fargo combined.
Led by CEO Jamie Dimon since 2005, JPMorgan Chase has a track record of prudent capital and risk management that has enabled it to navigate challenging economic and market conditions. The bank emerged from the 2008 financial crisis well, which is how it grew into the behemoth it is today.
NYSE: JPM
Key Data Points
More recently, JPMorgan Chase expertly navigated the rising interest rate environment in 2022 and 2023. Not only did the bank see excellent growth in net interest income, but it also did a good job of "hoarding cash" during the ultra-low interest rate era during the pandemic and has put that cash to work in today's higher interest rate environment.
While some banks were experiencing deposit outflows amid the 2023 regional banking crisis, JPMorgan, with its fortress balance sheet, was well-positioned to acquire the assets of failed First Republic Bank.
JPMorgan Chase has done an excellent job navigating various environments. Next year, the bank projects net interest income excluding markets to be around $95 billion, or a roughly 3% increase from this year. Robust capital market activity should also be a tailwind for JPMorgan, which has established a strong investment banking presence.
A rebound in capital markets should benefit this investment bank
A rebound in capital markets should bode well for Goldman Sachs (GS +3.17%) and its investment banking-heavy business.
The rising interest rate environment from 2022 to 2023 stifled investment banking activity. At the time, many companies put plans to go public on hold, as they awaited better market conditions. Not only that, but mergers and acquisitions also came to a crawl, as major mergers faced heightened scrutiny for antitrust reasons.
NYSE: GS
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However, conditions have improved, and capital markets are heating up. According to Renaissance Capital, 196 initial public offerings (IPOs) have been priced this year, up 40% from 2024. Meanwhile, the total proceeds raised from those IPOs were $36.4 billion, representing a 26% year-over-year increase. This year has seen the return of some major IPOs, including Figma, CoreWeave, and Circle Internet Group.
Meanwhile, dealmaking has also increased. According to EY, mergers and acquisitions (M&A) activity increased 8.3%. However, the real growth was in major deals, as total deal value surged 146.5% year over year.
Positive momentum is expected to continue. CFO Denis Coleman informed investors during Goldman's third-quarter earnings call that "we continue to see strong momentum with our quarter-end backlog at its highest level in three years." Barring any market disruptions, the bank expects M&A activity to be even stronger heading into 2026, which would be a tailwind for Goldman Sachs.
This bank is undergoing a transformation
Citigroup has lagged its peers for years on key metrics such as return on equity. Part of the reason was its sprawling business, along with regulatory actions, such as fines for deficiencies, that have weighed on the bank and its operating efficiency.
Under the leadership of CEO Jane Fraser, the bank is seeking to reinvent itself. It's making some tough decisions, including cutting bonuses for top employees, reducing the number of layers of management, and selling off its less profitable business units.
NYSE: C
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As part of this, the bank is divesting from its Mexico retail bank, Banamex. The bank will sell 25% of its stake to businessman Fernando Chico Pardo for approximately $2.3 billion. It plans to go public with its remaining stake, which is expected sometime next year.
Citigroup trades at 1.14 times tangible book value (P/TBV), which is significantly cheaper than JPMorgan Chase (P/TBV of 3.03) and Goldman Sachs (P/TBV of 2.56), making it more appealing to investors seeking value. Citigroup also operates a large investment banking business, which should provide another favorable tailwind as it undergoes its transformation.
