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By: Aquib Nawab
Finance
With the anticipation of the Fed cutting rates in the upcoming year, the spotlight has returned to banking stocks. A surge in equities, including banks, occurred due to improved inflation readings in Q4. The Invesco KBW Bank ETF soared nearly 40%, outpacing the S&P 500. Wall Street analysts have upgraded several banking stocks, indicating a bullish trend.
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Citigroup shares have been on a consistent upward trajectory, recently reaching their highest level in almost two years. The rally in Citigroup's stock price is attributed to both the broader risk-on sentiment since November and specific factors that contributed to its recent gains.
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The positive momentum received a significant boost with a decent Q4 earnings report earlier this month. A fresh upgrade from Morgan Stanley, particularly notable as it was a double-barrelled upgrade, shifted Citigroup from an official Sell or Underweight rating to an official Buy or Overweight rating.
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Analyst Betsy Graseck's outlook is optimistic, with expectations of Basel III rules being relaxed in the near term, potentially paving the way for increased share repurchase programs. Notably, Oppenheimer set a target price of $95, indicating substantial upside potential, far exceeding Graseck's $65 price target.
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Similar to Citigroup, Goldman Sachs has been recognized by Morgan Stanley for maintaining high capital levels in the industry. If Basel III rules are lightened, it could lead to an expanded share repurchase program, which is often viewed as a bullish signal to the market.
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Analyst Betsy Graseck upgraded Goldman Sachs to a bullish Overweight rating. Interestingly, her target price of $449 was exceeded by Oppenheimer's target of $506, implying a potential 30% rally in the coming months.
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Achieving Oppenheimer's target price would not only break through 2021's all-time record but also establish new all-time highs. After a month of consolidation following a 35% rally starting in November, the recent upgrade is expected to reignite upward momentum.
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Bank of America's shares have shown strength in recent months, gaining 40% since the low point in October. This performance positions Bank of America as one of the stronger bank stocks in recent weeks.
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Despite carrying more baggage than some of its peers, Bank of America stands out as an underdog with a price-to-earnings (P/E) ratio of just 11. Comparatively, Citigroup's P/E is 14, and Goldman Sachs' P/E is 17. This valuation discrepancy suggests a potential bargain opportunity for investors.
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For Bank of America, it's crucial to surpass and maintain the $35 price level to avoid slipping back into the multi-year downtrend. If achieved in the next few weeks, it could signify an exciting turning point.
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