5 Best Bank Stocks to Buy in July 2021

The financial sector has had a positive performance this year amid an ongoing sector rotation that has pushed the value of equities in this segment of the market by 24.5% as indicated by the gains seen by the SPDR Financial Sector ETF (XLF).

As economies around the world progressively recover from the hit they took during the pandemic, the outlook for this sector continues to be promising while policymakers could soon start to rethink their ultra-accommodative stand to favor an environment of higher interest rates that could favor banks in the long run.

To help you in short-listing your potential candidates to get exposure to this promising sector, the following article provides you with a list of the 5 best bank stocks to invest in July 2021.

1. SVB Financial Group (SIVB)

The SVB Financial Group is a diversified banking group headquartered in Santa Clara, California that employs over 4,000 people to run its private, investment, and commercial banking operations.

Data from TradingView shows that the bank has managed to double its revenues from $2 billion back in 2017 to $4 billion by the end of last year, with sales averaging a 12% advance per year in the past two years.

Gains on investment securities drove the firm’s top-line results higher during 2020 as the stock market recovered from the February-March crash while investment banking revenues came in more than two times higher compared to a year ago as well. The positive performance of this segment more than offset the small decline seen in the firm’s interest income.

Meanwhile, SVB’s operating margins are particularly good and have stood above 40% during this period while net income has moved from $490.5 million to $1.21 billion during these three years at a compounded annual growth rate (CAGR) of 35%.

Moreover, SVB Financial Group displayed strong capital coverage ratios, with the CET 1 ratio landing at 12.9% by the end of the first quarter of 2021.

Based on analysts’ estimates for 2021, as compiled by Koyfin, earnings per share for SVB should land at $27.77 by the end of this year resulting in a 21.4% jump compared to a year ago.

This results in a forward P/E ratio of 19.5 that seems fairly attractive based on the company’s historical earnings growth and robust balance sheet. So far this year, SVB has delivered gains of 40.2% for investors – almost two times more than what the XLF ETF has yielded during that same period.

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2. Goldman Sachs (GS)

Goldman Sachs is considered the #1 investment bank in the world by several different metrics related to the volume of equity and M&A deals they manage to close annually.

This puts the American bank in a favorable position at a point when the market is flooded with cash amid the trillions of dollars injected to the economy by both the Federal Reserve and the US Congress to withstand the pandemic fallout.

Last year, Goldman managed to push its earnings 11.7% higher while its quarterly earnings surged to $6.84 billion during the first quarter of 2021 compared to $1.21 billion the firm brought in during the same period in 2020 and $2.25 billion it brought in 2019.

This incredible jump in the bank’s profitability was primarily caused by an uptick in the volume of deals it has been handling amid the rise of SPAC-backed public offerings, corporate fixed-income issues, and equity offerings.

Meanwhile, the management cited a strong pipeline of deals for what remains of the year during the quarterly earnings call, which means that Goldman will probably be fairly busy for what remains of the year and that should help the bank in maintaining profits at these elevated levels for the foreseeable future.

Trading at a forward P/E ratio of only 8 times the firm’s forecasted earnings for 2021, Goldman Sachs shares appear to be trading at bargain prices this year. That said, keep in mind that earnings forecasts for Goldman appear to be very optimistic as they are anticipating an 83% jump in the firm’s bottom-line results for this year. Any changes in the current environment could lead to a significant adjustment of these estimates and a subsequent downtick in the share price.

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3. Blackrock (BLK)

Blackrock is one of the world’s largest asset management firms with approximately $9 trillion in assets under management according to the firm’s latest financial report. Last year, this financial company managed to push its top-line results 13.8% higher amid a significant uptick in inflows received by its equity and fixed-income investment products.

Meanwhile, the company reported a big jump in total revenues during the first quarter of the year as well, with top-line results moving from $4.4 billion to $3.71 billion while net income for the firm rose 16.5% compared to a year ago.

The current environment is favorable for Blackrock as the firm has become one of the largest providers of passively-managed equity and fixed-income investment vehicles.

At the moment, the firm is trading at a forward P/E ratio of 23 times based on EPS estimates of $37.6 for 2021. Although this ratio is a bit high compared to the firm’s forecasted growth rates of 15% to 20%, Blackrock could surprise analysts with its performance this year as equity markets continue to rise to all-time highs.

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4. Bank of Montreal (BMO)

The Bank of Montreal is the fourth largest financial institution in Canada and a diversified conglomerate also known as BMO that operates multiple business units including Personal and Commercial Banking, Wealth Management, and Capital Markets.

Despite the blow that the bank’s financials took during the pandemic, the latest quarter report from BMO shown that both revenues and profitability have been progressively recovering and could soon climb back to their pre-pandemic levels.

Revenues for the second fiscal quarter of 2021 landed at USD$4.85 billion compared to $4.50 billion the institution reported back in 2019 (before the pandemic) while net profits landed at $1.06 billion compared to $1.2 billion the bank reported during the same period in 2019.

Meanwhile, the bank’s Q2 2021 report shows that BOM’s CET1 ratio stood at 12.4% while the bank is being valued at only 10.5 times its forecasted earnings for this fiscal year. Based on BMO’s track record of earnings growth and the positive tailwind that its capital markets unit is experiencing, this multiple seems fairly conservative for the Canadian bank.

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5. Fidelity National Financial (FNF)

Fidelity National is a Florida-based institution that provides title insurance, annuities, and other title-related products and solutions, employing over 27,000 people to operate its thousands of branches.

According to the firm’s annual report for 2020, Fidelity’s top-line results have been growing at a 10.4% CAGR since 2017 while its net earnings have more than doubled during that same period, moving from $692 million to $1.45 billion at a 20.3% CAGR.

Moreover, this financial company is currently offering a 3.4% dividend yield that seems fairly sustainable based on its historical cash-flow generation capacity.

Currently trading at a forward P/E ratio of 8 based on its forecasted earnings for 2021, FNF stock appears to be an undervalued stock based on the firm’s forecasted earnings growth for the next two to three years while its attractive dividend yield adds another layer of attractiveness for this financial stock.

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