Playing portfolio managers, JPMorgan Securities LLC analysts Steven Alexopoulos and John Pancari have taken a hypothetical $1,000 and allocated it among the 27 banking companies they cover.
"We try to be more like our clients, in the way they think," Mr. Alexopoulos, who covers mid-cap bank stocks for the JPMorgan Chase & Co. brokerage unit, said in an interview Thursday.
He and Mr. Pancari, who covers small-cap bank stocks, take a monthly look at the portfolio and reallocate based on which bank stocks they think will rise in value.
Zions Bancorp. consistently grabs the biggest share in their portfolio.
Mr. Pancari said bankers also like the reports because it gives them a better idea about how they stack up against their competitors. "It helps them gauge sentiment and see how close they are to any kind of rating change," he said.
The pair issued their latest portfolio report on Thursday, and Mr. Alexopoulos said Zions came out on top because it trades at an 8% discount to other regional bank stocks.
"The company missed first-quarter earnings on margin compression, which shaved about 5% off the stock price," Mr. Alexopoulos said. But the worst of the margin pressure is over, he said in a voice message to clients, "and I look for improvements in loan and deposit growth, efficiency, and a more stable margin to drive a ramp-up in earnings for the rest of the year. The long-term growth story remains intact."
The $47.5 billion-asset company's stock is down 7.3% since it reported first-quarter results on April 19. On Thursday, it fell 0.3%.
Cullen/Frost Bankers Inc. in San Antonio and Synovus Financial Corp. in Columbus, Ga., are also among the JPMorgan analysts' favorites, but it was Westamerica Bancorp. that made the move up in their rankings. Mr. Pancari praised the San Rafael, Calif., company's "notably pristine credit quality in the midst of a gradually deteriorating credit environment." Westamerica, he wrote, also is likely to benefit from "business and talent acquisition opportunities in the wake of the Wells Fargo/Greater Bay deal."
Commerce Bancorp, on the other hand, is among their least favorite bank stocks - mainly because the Cherry Hill, N.J., company's shares are already trading at a high price.
"A stabilizing margin is already in the stock price," Mr. Alexopoulos said.
"With the prospects for an eventual [Fed] rate cut being extended due to concerns over inflation, we believe this prolongs an eventual recovery in Commerce's shares," he wrote in his report. He rates Commerce "neutral."
The $47.4 billion-asset company's net interest margin has fallen sharply in recent quarters and was down 26 basis points in the first quarter from a year earlier, to 3.27%. Its profit rose 1% from a year earlier, to $77.9 million.
Analysts have long been divided about Commerce's prospects, and some continue to argue that its successful consumer banking strategy will eventually lift profit.
Commerce shares fell 1.4% Thursday and are down a bit since an April 18 earnings report.
