JPMorgan Chase & Co., Bank of America Corp. and U.S. Bancorp are among the most attractive banking stocks this year because large lenders are almost finished with capital raising, analysts at KBW Inc. said in a report.
JPMorgan Chase, U.S. Bancorp and BB&T Corp. are "higher-quality banks" with earnings that are likely to rebound more quickly, KBW analysts, including David Konrad, wrote on Monday. They will benefit from acquisitions and U.S.-assisted takeovers and will pay higher dividends than the rest of the industry, KBW said. Bank of America is inexpensive compared with normalized earnings, the analysts wrote.
"We are more positive on the large-cap group now that it is through the bulk of capital raising and the group is approximately 53% through our cumulative loss estimates," they wrote. "We view the current environment as an opportunity to trade up."
Bank stocks in the 24-company KBW Bank Index fell about 3.6% last year, compared with a 23% gain in the Standard & Poor's 500 index. The KBW analysts recommended that investors be "overweight" in large banks, credit card network companies and life insurers and "underweight" in property and casualty insurers. The analysts also recommended the shares of SLM Corp., Jefferies Group Inc., Prudential Financial Inc. and Chubb Corp.
Investors should also buy warrants tied to companies that took funds from the Troubled Asset Relief Program, according to the report. JPMorgan Chase warrants sold by the Treasury have jumped 27% since they were auctioned last month, and Capital One Financial Corp. warrants have climbed 23% from their auction price.
JPMorgan Chase is "best in class" among large banks, the analysts wrote. It has set aside loss provisions to cover about 70% of expected loan losses and will probably increase its dividend early this year, they wrote. The company, which cut its dividend to 5 cents a share last year, has advanced 47% in the past 12 months.