Be Bold! Buy These Bank Stocks Now - Investment Ideas
August 10 2011 - 8:00PM
Zacks
Bank stocks around the globe have taken a dive in the last 2 weeks
as gloom and doom dominates the headlines.
But instead of cowering in fear, it's time to take
action.
Not all banks are created the same. It's time to
look beyond the headlines to find the hidden gems.
2011 = 2008?
Just like in 2008, there are rumors going around
the globe that certain large international banks may need capital
and/or be close to going under. Whether or not these rumors are
true is not really relevant, because true or not, it is putting the
"fear" trade back into the financial sector. And fear is what is
moving the bank stocks right now.
As European banking stocks get hit especially hard,
we're again hearing talk of a ban on short selling of the financial
stocks. The "too big to fail" large cap banks in the United States,
like Bank of America and Citigroup, have also seen their shares hit
new 52-week lows in recent sessions. A lot of this sounds like 2008
all over again.
But before you dismiss the banking stocks as too
much of a mess to touch, remember that there are a whole host of
banks that survived the 2008 financial crisis relatively unscathed
and are likely to do so again in 2011.
These banks are being lumped in with all the
others. It's guilt by association. But smart investors know to dig
deeper to discover those companies that are being sold off for the
wrong reasons.
The bank stocks are part of the emotional sell-off
but investors should really take another look.
3 Banks to Buy Right Now
1. Royal Bank of Canada
2. Toronto Dominion
3. UMB Financial
All 3 of these banks have seen their share prices
hit hard. That has created a buying opportunity.
In the last 3 months, shares have fallen by the
double digits- with most of the decline occurring in the last 2
weeks.
1. Royal Bank of Canada down
14.3%
2. Toronto Dominion down 10.4%
3. UMB Financial down 11.6%
They Never Drastically Cut Their Dividends in
2008/2009
If you're still a little queasy about jumping in
given the volatility (and with memories of Bear Stearns and
Wachovia in your head), keep in mind that not only did these three
banks survive 2008, they thrived.
Only Royal Bank of Canada cut its dividend during
the financial crisis but it was not by a large percentage. The
dividend payment has since resumed its upward trajectory and has
easily surpassed the 2008-2009 levels. Neither Toronto Dominion or
UMB Financial cut their dividend at all during the crisis.
That is impressive because many of their peers
either cut the dividend to the bone or eliminated it altogether.
Many have not even resumed paying a dividend.
Their current dividend yields are also very
attractive:
1. Royal Bank of Canada: yield of
4.4%
2. Toronto Dominion: yield of 3.6%
3. UMB Financial: yield of 2.0%
Double Digit Earnings Growth Expected
While some banks are struggling, these three are
not. All three have low P/Es and analysts expect double digit
earnings growth in 2011.
1. Royal Bank of Canada (RY) is Canada's
largest bank as measured by assets and market cap. It provides both
personal and commercial banking, wealth management and investment
banking services in 58 countries.
It reported record net income in the first quarter
of 2011 and will report second quarter results on Aug 26.
Forward P/E: 10.5
Expected fiscal 2011 Earnings Growth: 32.5%
Zacks #3 Rank (hold)
2. Toronto-Dominion Bank (TD) is the 6th
largest bank in North America. It provides Canadian and U.S.
personal and commercial banking, wealth management, and wholesale
banking.
Net income rose 18% year over year in the fiscal
second quarter. The bank will report third quarter results on Sep
1.
Forward P/E: 10.4
Expected fiscal 2011 Earnings Growth: 22%
Zacks #2 Rank (buy)
3. UMB Financial (UMBF) is a financial
services company headquartered in Kansas City. It operates in 7
states and offers banking and asset management services, such as
mutual funds.
The company saw record total revenue in its second
quarter due to strength in its fee business. It also saw average
total deposits rise 14.9% year over year.
Forward P/E: 12.9
Expected 2011 Earnings Growth: 22%
Zacks #3 Rank (hold)
Be Bold!
Not every bank is scary but stock investors are
acting like they are as they sell the sector off en mass. Use this
sell off as a buying opportunity to pick up high quality names on
the cheap. And you'll even get some great dividend yields too.
Tracey Ryniec is the Value Stock Strategist for
Zacks.com. She is also the Editor of the Turnaround Trader and
Insider Trader services. You can follow her at
twitter.com/traceyryniec.
ROYAL BANK CDA (RY): Free Stock Analysis Report
TORONTO DOM BNK (TD): Free Stock Analysis Report
UMB FINL CORP (UMBF): Free Stock Analysis Report
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