Best Stocks: 3 Bank Stocks to Buy—Even if Tax Reform Fails

Bank investors have already enjoyed their post-election euphoria: By March the market capitalization of the S&P 500 Financial Index reached a record $3.1 trillion. Since then, high share prices have scared some investors away. But Christopher Davis, chairman of Davis Funds, notes that bank stocks still trade at a discount greater than 20% to the S&P 500. Here are three that the pros like.

J.P. Morgan Chase (jpm)

J.P. Morgan’s stock has nearly tripled in the past five years, leading some investors to fear a slowdown. But ­Davis thinks it’s one of several banks that may soon increase their dividends, even if President Trump’s proposed tax and regulatory cuts aren’t enacted. The bank currently pays about 30% of its earnings as dividends. A significant bump in that payout could please shareholders, even if the stock price lags.

Citigroup (c)

Donald Trump’s antitrade rhetoric sent emerging-market stocks plummeting after his election—and left some investors wary of Citigroup, which earns about 36% of its revenue in such markets, says Conor Muldoon, a portfolio manager at Causeway Capital. With those markets rebounding (see our Midyear Investor’s Guide) and Trump moderating his stances, Citigroup shares look more attractive: At 12 times trailing earnings, they’re cheap relative to other banks.

South State Bank (ssb)

Regional lenders don’t get the investor attention that big banks do, but some deserve a second look. Susan Schmidt, senior portfolio manager at Westwood, says that South State, which focuses mostly on the Carolinas, could get a lift from “reshoring” of manufacturing under the Trump administration. Even without such help, South State has shown a knack for attracting business; its deposits grew 74%, to $8.9 billion, between 2012 and 2016.

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This article is part of Fortune’s 2017 Midyear Investor’s Guide. For our picks in other sectors, click on the links below:

A version of this article appears in the June 1, 2017 issue of Fortune as part of our feature titled “State Street’s Gender Show Down.”

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