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All Contents © 2017The Kiplinger Washington Editors
By Laura Hoy
| February 2017
This year was meant to be the year of the bank stocks. With interest rates expected to rise and the Trump administration’s policies looking favorable for the financial sector, the stocks to buy were those within the banking industry.
However, in recent weeks there has been some indication that banking stocks could see a dip on the horizon. Investors may be starting to lose confidence in President Trump’s pro-business, "America first" agenda, which is hurting the market.
While his promises to do away with the regulations that have been weighing on banks for years appeared to be a catalyst for stock prices, the uncertainty that has begun to creep into the market now that Trump is in office may have the opposite effect.
Over the next few weeks, Trump will continue making sweeping changes to U.S. trade and foreign policies, which could weigh on the market as a whole and cause a dip. Should bank stocks continue to slide, investors would be wise to keep the long-game in mind and snap up some banking stocks before rising interest rates and improved regulatory conditions lift their share prices once again.
Here’s a look at three bank stocks to buy on the next dip.
Prices and data are from the original InvestorPlace story published on February 7, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Joe Morgan via Wikipedia
JPMorgan Chase & Co. (JPM) is one of America’s largest banks and the firm’s price-to-earnings ratio of 14.68 makes it an affordable buy.
The good thing about owning JPM stock is that the company is a worthwhile investment whether things work out under Trump or not. JPMorgan has a history of landing on its feet in times of crisis — the firm was able to buy out two of its biggest competitors during the financial crisis in 2008 and came out the other side of the meltdown as arguably the strongest player in the financial sector.
So, if Trump’s "drain the swamp" policies backfire and the U.S. slips into a recession, JPM is certainly one of the most secure bank stocks you can hold.
On the other hand, JPMorgan also stands to gain a lot from the Trump administration, particularly when it comes to deregulation. Trump has criticized the Dodd-Frank Act and Volcker Rule, saying he will do away with unnecessary regulations that have been weighing down on banks. This could be beneficial for JPM, which makes a great deal of money using loopholes in the Volcker Rule to make investments using depositors’ money.
Ken Teegardin via Flickr
Wells Fargo & Co. (WFC) is another big bank stock that will play both defense and offense in your portfolio. On one hand, WFC has made its name as one of the most profitable banks in the nation. Not only that, but the company was one of the only players in the financial sector to make it through the crisis relatively unscathed. The bank is very conservatively run, so it is one of the safest plays in the banking industry.
While Wells Fargo did take a hit due to its fake account scandal, the bank is likely to make a swift recovery — especially with Trump in office. Not only will WFC benefit from a rollback in financial sector regulations like the rest of its peers, but the bank has also averted what could have become an even larger crisis by having Trump in office.
The bank has avoided the wrath of Hillary Clinton, who vowed to make WFC pay while on the campaign trail; and the Trump administration appears to be wiping its hands of the situation as quickly as possible. The Labor Department has already taken down the site designated for Wells Fargo employees to log complaints about the scandal.
While the fake account scandal is certainly a setback for WFC stock, it appears to be nearly over and the bank will likely emerge with minimal long-term damage.
An Errant Knight via Wikipedia
Perhaps the most strategic play on a financial sector dip would be to buy shares of Zions Bancorp (ZION).
The mid-cap bank is likely to benefit the most from Trump’s deregulation plans because its assets total just over $60 billion, which puts the bank just over the $50 billion threshold that requires banks to undergo strict stress tests. Trump is likely to change those rules, which would make it easier for ZION to turn a profit by taking larger risks.
Like JPM and WFC, there is an element of defense in holding ZION stock as well. Quarter after quarter, Zions’ management has been able to grow the company’s income while keeping costs constant, a good indication of a well-run institution that will survive in times of crisis.
Over the last six months, ZION has gained more than 50% as investors flocked to the regional bank in order to benefit from Trump’s deregulation plans, but a meaningful dip would make the stock much more affordable.
This article is by Laura Hoy of InvestorPlace.
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