Financial stocks have been on fire in 2021.
Over the past six months, 10-year U.S. Treasury bond yields have nearly doubled. Although they remain historically low, a growing number of investors and analysts now believe inflation will push interest rates even higher in 2021 following more than $6 trillion in U.S. stimulus spending. Rising interest rates are good news for bank stocks because higher rates create an opportunity for net interest margin expansion. The Financial Select Sector SPDR Fund (ticker: XLF) is already up more than 19% since the beginning of this year, but CFRA analysts see even more upside ahead for these eight financial stocks.
Morgan Stanley (MS)
Morgan Stanley is one of the largest investment banks in the world. Analyst Kenneth Leon says Morgan Stanley has a leadership position in global capital markets. A stock market at all-time highs has triggered a rise in investor participation, which has boosted Morgan Stanley’s fee revenue. Leon says Morgan Stanley’s relatively large exposure to investment banking has allowed the company to outperform bank stock peers and gain market share during the current trading boom. In addition, Morgan Stanley has profited from record initial public offering activity. CFRA has a “strong buy” rating and $95 price target for MS stock.
Royal Bank of Canada (RY)
Royal Bank of Canada is the largest Canadian bank by market capitalization. Analyst Pauline Bell says the bank has been relatively insulated from the impact of low interest rates compared with many of its peers. Bell is projecting 2% to 4% revenue growth in fiscal 2021. She says the bank’s conservative mortgage lending and impressive reserve build should mitigate risks in its real estate secured portfolio. Finally, Royal Bank of Canada’s growing U.S. presence provides a unique growth opportunity compared with many of its Canadian bank peers. CFRA has a “buy” rating and $94 price target for RY stock.
Charles Schwab (SCHW)
Charles Schwab is a leading investment services company. Bell says lower interest rates and reinvestment yields have weighed on Schwab’s NIM, but a rise in total assets, cash levels and wallet share have helped offset those margin pressures. Bell says the October 2020 TD Ameritrade acquisition creates “significant value” for Schwab by adding an industry-leading platform that should be an earnings growth driver in coming years. Bell is projecting at least 42% revenue growth for Schwab in 2021 thanks to the TD Ameritrade deal. CFRA has a “buy” rating and $68 price target for SCHW stock.
BlackRock is the largest asset manager in the U.S. BlackRock shares initially dropped 7% back in January after PNC Financial Services (PNC) announced it was selling its 22% stake in BlackRock. But analyst Catherine Seifert says the PNC dip was a buying opportunity for long-term investors, and the firm will continue to outpace competitors in growing its asset base over the next several years. Seifert says BlackRock is a market leader in passive investments, and its funds have a solid performance track record. CFRA has a “strong buy” rating and $850 price target for BLK stock.
HSBC is one of the world’s largest banking and financial services companies, operating in more than 60 different countries and territories. Analyst Firdaus Ibrahim says HSBC’s recent strategy decision to focus on its Asia operations and prioritize its fee-generating wealth management businesses differentiates HSBC from peers focused on the lower-growth European market. Ibrahim says China will likely lead the global economic rebound in 2021, which is good news for HSBC. Finally, Ibrahim says HSBC shares are attractively valued, trading at a discount to their historical price-to-book average. CFRA has a “strong buy” rating and $38 price target for HSBC stock.
China Life Insurance Co. (LFC)
China Life Insurance is the largest life insurance company in China and holds about 20% of the country’s life insurance market share. Analyst Siti Salikin says China life has several bullish growth catalysts working in its favor, including its leading market position, its impressive distribution network, its dominance in high-growth provinces, its healthy balance sheet and its initiatives to improve operational efficiency over the next two years. Salikin says China Life is a great way for investors to make a long-term bet on China’s insurance industry. CFRA has a “buy” rating and $13 price target for LFC stock.
Goldman Sachs (GS)
Goldman Sachs is one of the world’s largest investment banks. Leon says he is expecting global capital markets to remain extremely active in the current low rate environment. Elevated retail trading activity, a robust merger and acquisition environment and historically high levels of corporate bond issuance are all tailwinds for Goldman. Leon is projecting Goldman will generate between 5% and 7% compound annual revenue growth over the next two years and says an improving economy will likely contribute positively to Goldman’s equity underwriting business, including IPOs. CFRA has a “strong buy” rating and $395 price target for GS stock.
Blackstone Group (BX)
Blackstone is one of the world’s largest alternative asset management firms. Seifert says Blackstone has secular growth opportunities, which the company demonstrated by reporting $95 billion in asset inflows in an extremely difficult macroeconomic environment in 2020. She says the low interest rate environment will continue to drive demand for private equity investments, but Blackstone’s $148 billion in unallocated capital may prove to be a near-term challenge. Seifert is projecting Blackstone’s distributable earnings per share will grow from $2.65 in 2020 to $3.25 in 2021. CFRA has a “buy” rating and $78 price target for BX stock.
Financial stocks to consider in 2021:
— Morgan Stanley (MS)
— Royal Bank of Canada (RY)
— Charles Schwab (SCHW)
— BlackRock (BLK)
— HSBC (HSBC)
— China Life Insurance Co. (LFC)
— Goldman Sachs (GS)
— Blackstone Group (BX)