Several bullish analyst recommendations on Bank of America Corp. lifted bank stocks across the board Monday.
The KBW Bank Index rose 7.53% after Goldman Sachs analysts upgraded B of A's stock to "buy," from "neutral," recommending that investors buy the Charlotte company's shares with "conviction." Also, Anthony Polini, an analyst at Raymond James & Associates, "strongly recommended" the purchase of B of A stock, as well as the shares of Wells Fargo & Co., because of their better-than-expected stress test results and the companies' very low price-to-earnings ratios on core earnings-per-share power.
"We believe these stocks can double in price over the next 12 to 18 months if the United States enters a modest recovery by early next year," he wrote. B of A's shares rose 9.9%, and Wells was up 8.3%.
James Bradshaw, an analyst at Bridge City Capital LLC in Portland, Ore., said that the banking sector overall was lifted by the analysts' recommendations, in addition to weekend news reports that Warren Buffett had increased his holdings in Wells and U.S. Bancorp during the first quarter. (U.S. Bancorp's shares rose 9.5%.)
"All of that got a lot of people thinking positively about banks," Bradshaw said. "Also, maybe because there were no bank closures on Friday, investors are thinking better of banks in the short run."
BMO Capital Markets analysts Monday upgraded their view of the banking sector from "market perform" to "outperform," as the rate of decline in housing prices slowed and credit standards have been tightened. The analysts also raised their recommendations on several stocks from "market perform" to "outperform," including U.S. Bancorp; TCF Financial Corp. in Wayzata, Minn., up 6.6%; East West Bancorp Inc. in Los Angeles, up 14.5%, and BOK Financial Corp. in Tulsa, up 11.8%.
Investors were also encouraged by a research note published Monday by Rochdale Securities analyst Richard Bove, who wrote that, as the economy recovers, banks could experience "explosive earnings growth" and a tripling of stock prices during the next five years.
State Street Corp.'s shares rose 8.5%, after the Boston custody banking company said it was selling $1.5 billion of common stock and at least $500 million of senior debt in order to raise funds for repayment of the $2 billion of capital it got last fall from the Treasury Department's Troubled Asset Relief Program.
Other gainers Monday included JPMorgan Chase & Co., 6.7%; PNC Financial Services Group Inc., 6.7%; Regions Financial Corp., 12%; SunTrust Banks Inc., 6.3%; Fifth Third Bancorp, 12.5%; KeyCorp, 4.3%; Comerica Inc., 6.2%, and Citigroup, up 16 cents, to $3.64.
The broader markets also rose; the Dow Jones industrial average, 2.85%, and the Standard & Poor's 500 index, 3.04%.
The National Association of Home Builders/Wells Fargo Housing Market Index rose to 16 in May from 14 in April, in line with analysts' expectations. It was the index's highest level in eight months.