As this record bull market keeps chugging along, it seems as though there aren’t any stocks that haven’t benefited from the slow steady rise of the market. And as a value investor, this can make investing in this climate challenging. Are there any good deals out there? The answer is yes, and the best value play are bank stocks.
Why do I suggest that the best value play are bank stocks right now? As the market keeps rising, these stocks tend to stay stuck in place, not making any price moves higher. As a result, there are some good names in this sector that you can buy.
In this post, I am going to highlight the 3 best banks for a value investment.
The Best Value Play Are Bank Stocks Why?
Before we get into the best bank stocks, we need to take a minute to understand why Wall Street is “punishing” these stocks.
There are a couple of reasons.
- Rising interest rates. As interest rates rise, it costs banks more money to borrow and this hurts their bottom line.
- Trade war. As the trade war continues, this indirectly hurts bank stocks as the businesses they have accounts with might see a slowdown, thus bringing the banks less income.
- Bull market. Not so much that the bull market is the reason, but people are starting to talk about the end of this run.
While all of these are valid worries, none holds much weight. Interest rates are rising, but ever so slightly, thus they shouldn’t have a large impact on the bottom line.
Next, the trade war is more hype than hurt. Yes it is having an impact, but not to the degree that the media is making it out to be.
Finally, when a bear market does come, you can expect the stock market to suffer. However, since the best value play are bank stocks, I don’t see these stocks getting hit as hard as other stocks.
3 Great Bank Stocks Right Now
#1. Wells Fargo (NYSE: WFC)
Wells Fargo is still feeling the effects of the scandal that plagued them last year. But this is a good thing for investors.
The company is committed to cleaning up its act and winning back customers. They have new ad campaigns to help with this and are working on new products, services and ways of doing business that puts the customer first.
This is a longer term play, but one I see paying off nicely.
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#2. JP Morgan Chase (NYSE: JPM)
The banking division of Chase has close to 18 million household customers. Last month, the company announced a new robo-investing service that will be completely free for Chase customers.
I don’t think this will bring in a flood of new bank accounts, however as people begin to move some money from third party investment firms over to Chase, this will have an impact.
Additionally, with this move, it shows Chase is thinking to the future and not the past. And by showing us this, they are a company that should be able to survive and profit as technology changes.
#3. Financial Select Sector SPDR Fund (NYSE: XLF)
I admit I am cheating here a bit by suggesting this one. Instead of an individual stock, this is a play on a larger chunk of the sector.
But I love this option because you lower your risk of needing to pick the one or two bank stocks that are going to outperform the market going forward.
The ETF is actually up around 2% as of August 31st but has close to a 9% growth rate over the next 3-5 years.
It’s an easy way to get exposure into the banking sector and one I like a lot.
At the end of the day, the best value play are bank stocks. They are the only sector that hasn’t enjoyed this bull market to its fullest extent and as a result, you can buy shares of these companies for cheap.
There are many other options out there for you too, including regional bank stocks that are also a good value play at the moment.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.