Banking companies with diversified business lines and fee-based revenue streams are best positioned to weather the volatile market conditions that have rattled financial stocks recently, according to analysts.
In a research report published Wednesday, Catherine Murray of J.P. Morgan Chase & Co. recommended staying with higher-quality names to avoid getting blown up by the negative sector fundamentals. She named Wells Fargo & Co. and Citigroup Inc. as the stocks investors should keep in their portfolio. A number of other analysts also pointed to Citigroup as a good stock to own right now. With a broad menu of financial services that includes banking, insurance, and brokerage, Citigroup has excellent growth prospects, said Andrew Collins, an analyst at ING Barings, who participated in an American Banker roundtable on Tuesday.
Mr. Collins said he expects Citigroups earnings to increase 14% to 15% this year. Compared with other world class financial companies, it sells at a low price/earnings ratio, he said. Citigroup is trading around 19 times last years earnings per share.
Clearly the diversity of earnings at Citigroup should show through in the next year or so, even if there is a more difficult capital markets environment, he said.
In a research report published Friday, Henry H. McVey, an analyst at Morgan Stanley Dean Witter & Co., put Citigroup high on his list of top picks but warned that a hard economic landing, particularly outside the United States, where Citigroup has a big presence, could hurt the companys earnings.
Citigroups shares are off to a good start this year. The stock rose 10.27% during the first three trading days of 2001, climbed $1.75 on Wednesday, or 3.35%, to close at $53.9375.
Diana Yates of A.G. Edwards & Sons in St. Louis said the New York banking giant is a defensive stock that will hold up well against the entire financial group. However, the stock might not be such a good bet for new investors, because it has had a good run already and therefore does not offer a lot of growth, she said.
Ms. Yates said she likes Morgan-Chase, even in the wake of the companys recent warnings that fourth-quarter earnings could miss their targets because of volatility in capital markets and expenses from Chase Manhattan Corp.s purchase of J.P. Morgan & Co. Most of the downside is priced into stock already, she said.
Morgan-Chase rose $2.25, or 4.02%, to $50.9375.
In a fourth-quarter outlook published on Dec. 27, Susan L. Roth, managing director of research at Credit Suisse First Boston, also wrote that Chase J.P. Morgan presents a good buying opportunity despite issues surrounding its earnings.
Meanwhile, Mr. Collins said Bank of New York is one of top 10 banks in the United States that are showing good fundamentals. The companys 25% return on equity, 2% return on assets, 65% of total revenues in fee income, and an efficiency ratio 48% is quite attractive, he said.
Katrina Blecher, managing director of research at Sandler ONeill & Partners, said Bank of New York has the growth component, and yet we think it is defensive, regardless of market movement. Fee income, including revenues from its global custody business, could make up 75% of the companys revenue, Ms. Blecher said. It also has excellent growth opportunities in Europe, she said.
Bank of New York rose 25 cents, or 0.47%, to $53.375.