The major stock market indices retreated last week as consumer price data showed higher-than-expected inflation. The Consumer Price Index rose 6.2% in October from a year earlier, its biggest jump in more than 30 years. Inflation has been climbing due to rising demand fueled by liquidity, an economic recovery-induced buying spree, and supply-side constraints.
Strong inflationary trends typically mean the value of bonds and cash struggle to keep pace with the rising inflation. According to personal finance expert Suze Orman, “Only stocks have a track record of earning more than inflation.” Banks, especially, tend to benefit when the Fed tightens its monetary policy because of their asset-sensitive nature. When interest rates rise, bank assets like bonds and loans tend to climb higher than their liabilities, such as various deposits. And investors’ interest in the banking stocks is evident in the First Trust Nasdaq Bank ETF’s (FTXO) 3.2% gains over the past month.
So, to contribute to making one’s portfolio inflation-proof, we think it could be wise to scoop up quality banking stocks Wells Fargo & Company (WFC), U.S. Bancorp (USB), and KeyCorp (KEY). They are expected to gain significantly with the Fed tightening its monetary policy.
Wells Fargo & Company (WFC)
WFC is a financial services company that provides a diversified set of banking, consumer and commercial finance, investment, and mortgage products and services. The San Francisco-based bank operates through four segments: consumer lending; commercial banking; corporate and investment banking; and wealth and investment management.
On November 8, 2021, WFC announced that it is offering Black Knight’s Servicing Digital solution to its mortgage customers. Servicing Digital’s web and mobile solution provides detailed, timely, and highly personalized information about WFC’s consumers and their mortgages and loans. Joe Nackashi, the President of Black Knight, said, “We are pleased to expand our relationship with Wells Fargo further and deliver solutions that can bring tremendous value to its customer base.”
For its fiscal third quarter, ended September 30, 2021, WFC’s net income increased 59.2% year-over-year to $5.12 billion. Its EPS increased 67.1% year-over-year to $1.17. Also, its average deposits increased 4% year-over-year to $1.45 trillion.
Analysts expect WFC’s EPS and revenues for its fiscal 2021 to increase 1,036.6% and 5.2%, respectively, year-over-year to $4.66 and $76.12. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 114% in price to close Friday’s trading session at $50.96.
WFC’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Growth and Value. In the B-rated Money Center Banks industry, it is ranked #1 of 10 stocks. Click here to check the additional ratings of WFC for Momentum, Stability, Sentiment, and Quality.
U.S. Bancorp (USB)
Financial services holding company USB in Minneapolis, Minn., provides various financial services. It operates in Corporate and Commercial Banking; Consumer and Business Banking; Wealth Management and Investment Services; Payment Services; and Treasury and Corporate Support segments.
On September 21, 2021, USB entered a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise for approximately $8 billion. The deal is expected to add more than a million consumer customers and 190,000 small business customers to the company’s portfolio.
USB’s net income increased 28.3% year-over-year to $2 billion for its fiscal third quarter, ended September 30, 2021. The company’s average total deposits increased 6.4% year-over-year to $26 billion. In addition, its EPS increased 31.3% year-over-year to $1.30.
For its fiscal year 2021, USB’s EPS is expected to increase 68.3% year-over-year to $5.15. Its revenues for its fiscal 2022 are expected to increase 10.6% year-over-year to $25.3 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 41.3% in price over the past year to close Friday’s trading session at $60.50.
USB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability and Sentiment. It is ranked #2 in the Banks industry. To check the additional ratings of USB (Growth, Value, Momentum, and Quality), click here.
KEY operates as the holding company for KeyBank National Association that provides various retail and commercial banking products and services in the United States. The Cleveland, Ohio-based concern operates in two segments: Consumer Bank and Commercial Bank. Also, it offers multiple deposits, investment products, and services.
For its fiscal third quarter, ended September 30, 2021, KEY’s revenues increased 8% year-over-year to $1.82 billion. Its tax-equivalent net interest income increased 1.9% year-over-year to $1 billion. In addition, its average deposits increased 9% year-over-year to $147 billion. And its EPS increased 58.5% year-over-year to $0.65.
Analysts expect KEY’s EPS and revenues for its fiscal year 2021 to increase 100% and 6.3%, respectively, year-over-year to $2.54 and $7.14 billion. It has surpassed the Street’s EPS estimates for each of the trailing four quarters. Over the past year, the stock has gained 66.3% in price year-over-year to close Friday’s trading session at $24.09.
KEY’s POWR Ratings reflect a promising outlook. The company has an overall B rating, which translates to a Buy in our proprietary rating system.
It has a B grade for Value. It is ranked #3 in the Money Center Banks industry. Click here to see the additional POWR Ratings for KEY (Growth, Momentum, Stability, Sentiment, and Quality).
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WFC shares rose $0.11 (+0.22%) in premarket trading Monday. Year-to-date, WFC has gained 71.39%, versus a 26.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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