Since October, the NASDAQ Bank Index NASDAQ: BKX
has tacked on more than 30% and has come within touching distance of its pre-COVID levels. We’re only one trading day into the new year and already the upgrades are flying in. On Monday, Barclays were out with 3 notable calls on 3 notable banks, clearly impressed with the recent rally in the financial sector.
For any investors who are looking to balance out a portfolio that’s maybe a little heavy on tech, e-commerce, and work from home stocks, give some thought to these stalwarts who are able to move with the best of them. Barclays is particularly bullish on the rally in these bank names continuing this year, driven by recovering EPS numbers and lower than expected loan loss provisions.
With a 100% move since March, shares of Goldman belie their $90 billion market cap and 150 year history. They have a strong record of double digit percentage rallies and it looks like we’ve another one on our hands for 2021. With the stock having just tapped Barclay’s previous price target of $270, the latter has upped it to $362, suggesting upside in the region of 30%.
Analyst Jason Goldberg expects “relatively more aggressive” capital returns and improving revenue durability to continue driving upside surprises. Considering shares are less than a 5% move away from their all time highs, set back in 2018, Barclays clearly have big hopes for them to breakout into blue sky territory.
Morgan Stanley (NYSE: MS)
Goldberg went a step further with Morgan Stanley, upping their price target by almost 50% as it went to $88. He’s anticipating more EPS growth in the region of 50% over the next two years across these names as they recover from 2020’s dip. Indeed, he’s banking on Wall Street being impressed with how well they navigated 2020 to continue backing them into the new decade.
By the end of January, he’s expecting Morgan Stanley to have raised their pre-pandemic profitability targets, a sure fire sign that the worst is far behind them. Shares are already up 40% in the past two months and on track to finally exceed their highs from 2007 in the coming weeks.
Even though they only IPO’d in 2014, the fact that Ally’s shares are already at all time highs speaks volumes for the Detroit headquartered company. They’re up more than 250% since March while at the same time also offering investors a 2.15% dividend yield.
Barclays doesn’t expect the rally to stop anytime soon and with a price target of $48, is actually anticipating upside of close to 40% from Monday’s close. Losses from their retail auto loan division haven’t grown as previously expected and even with the recent rally, shares are still trading below tangible book value.
Goldberg has zoomed in on the company’s net interest margin performance and their share repurchase capacity as two key drivers which will help them outperform their banking peers in 2021.
With all that being said, investors need to be cognisant of the challenges facing bank names in 2021. Interest rates aren’t expected to come off the floor anytime soon which is a natural headwind for them while at the same time, coronavirus cases are still spiking around the world and bringing with them the usual panic and concern. Barclays actually went so far as to downgrade a few names like Citigroup (NYSE: C) in the space yesterday but in a way this makes the other 3 upgrades all the more impressive.
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