5 Best Bank Stocks to Buy in January 2022

While the broader markets have been weak in 2022 amid rate hike fears, bank stocks have outperformed. The sector had outperformed the markets last year as well.

Banks generally borrow at the short end of the curve and lend at the long end. In a rising rate environment, they make a higher margin as compared to what they make in a low interest rate environment. If the economic momentum sustains in 2022, bank stocks might continue to outperform.

The earnings season for bank stocks is about to begin and JPMorgan Chase and Wells Fargo are scheduled to release their fourth-quarter earnings later this week. Bank earnings are expected to show continued momentum in earnings after a strong 2021. Here are the five best bank stocks that you can buy in January 2022.

1. Wells Fargo (NYSE: WFC)

Wells Fargo was among the best performing bank stocks in 2021 and has continued its good run in 2022 as well. Many brokerages believe that WFC is among the best bank stocks to buy amid the rising rate environment. In its report, Barclays said that “WFC stands to benefit the most of our coverage universe from higher interest rates while it has made significant investments in its control functions since its retail banking sales practice issues came to light. The eventual lifting of regulatory restrictions also represents a potential catalyst looking out.” Barclays’ analyst Jason Goldberg also raised the stock’s target price to $62.

WFC is the best bank stock to play rate hikes

Morgan Stanley also believes that WFC is the best bank stock to play the rate hikes. Notably, WFC has had been in perennial controversies over the last five years but things have been getting on track under the new CEO Charlie Scharf.

As WFC heads into the fourth-quarter earnings, CFRA also issued a bullish note and believes that the bank will report strong loan growth and net income margin. Overall, WFC looks like the best bank stock to buy in January 2022.

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2. Citigroup (NYSE: C)

While Wells Fargo stock outperformed banking peers in 2021, Citigroup stock underperformed by a wide margin. The stock’s underperformance is not limited to 2021 alone and it has consistently underperformed over the last decade. However, Citigroup looks like a good bank stock to own after the underperformance. Under the leadership of its CEO Jane Fraser, who took over in 2021 only, the bank decided to exit consumer banking in 13 regions in a bid to focus on its core markets. The move with help Citigroup raise cash and deploy it in more profitable markets.

Citigroup is an attractively valued bank stock

Meanwhile, looking at the valuations, Citigroup stock looks quite undervalued. In its third-quarter earnings call, it reported a book value per share of $92.16 and a tangible book value per share of $79.07. At current prices, we get a price-to-tangible book value multiple of around 0.8x. Typically, multiples below 1 are seen as a sign of undervaluation and all other major US banks trade well over their tangible book value.

Citi is also spending aggressively on buybacks which would further increase its tangible book value. If you are looking to buy a financial company with tepid valuations, WFC looks like a good bet.

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3. SoFi (NYSE: SOFI)

While SoFi is not a bank per se, it is still a play on the industry. The company is a diversified fintech company that is soon expected to get a banking charter. Last year, Citi initiated coverage on SoFi stock with an overweight rating and said that it expects the stock to bounce back to $20. Notably, Citi has not factored in the bank charter which could lead to further upside in SoFi stock.

SoFi is expected to get a bank charter

Fintech stocks have come under pressure amid the sell-off in growth names. Not only SoFi, companies like Paysafe, PayPal, Affirm, and Coinbase have also tumbled. However, after the crash, SoFi is one stock that should be on your radar.

The fintech industry is giving a tough challenge to traditional banks, and with its diversified product offering and the projected topline growth, SoFi looks like a good neo bank to own.

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4. JPMorgan Chase (NYSE: JPM)

JPMorgan Chase is America’s largest bank. It was once part of Warren Buffett’s portfolio but the Oracle of Omaha has exited the company. He also exited Goldman Sachs and sold most of the Wells Fargo shares. However, if you are looking to buy a bank stock in January 2022, JPM is one name that you can consider.

Wall Street analysts have a mixed forecast for JPM stock and of the 28 analysts covering the stock, only 15 rate it as a buy. 11 analysts rate it as a hold while the remaining two have a sell rating. The stock’s median target price of $184 is a 10.2% premium while the street high target price of $210 is a premium of almost 26% from these levels.

The stock has a dividend yield of 2.4% and looking at the continued momentum in the business and the expected cash flows, it could further increase the dividends and stock buybacks this year.

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5. SPDR S&P Bank ETF (NYSE: KBE)

ETF investing has become very popular and total ETF assets are now over $7.2 trillion. December was a record month for US ETF and inflows were almost $100 billion which took the 2021 inflows to over $900 million which was much higher than the previous year. ETFs can be a good investing strategy especially for investors who lack the time or analytical skills to pick individual stocks. Their low expense ratio makes them an attractive investment option. If you are looking to invest in an ETF that gives you exposure to bank stocks, SPDR S&P Bank ETF looks a good option.

KBE gives you exposure to bank stocks

KBE has a diversified portfolio and regional banks account for almost three-fourths of the assets. Thrifts and mortgage finance companies account for 12% while diversified banks account for just under 7%. The ETF tracks the performance of the S&P 500 Banks Select Industry Index and has an expense ratio of 35 basis points.

KBE looks like a good way to get diversified exposure to banking stocks and is less risky as compared to investing in individual companies.

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