4 Banks to Consider Amid Economic Uncertainty

The Federal Reserve decided to keep interest rates steady last week, highlighting the challenge of managing last-mile inflation and concerns regarding potential tariff impacts on prices. Chairman Jerome Powell's conference following the announcement was notably calm, yet it conveyed an underlying sense of uncertainty in the markets. Many investors appear to be recalibrating expectations, with speculation growing that a rate cut in March may be less likely.

Despite the current climate, there is optimism for certain sectors, especially banks, which could see benefits from a new wave of deregulatory measures from the administration. The banking sector has experienced considerable gains since the election results in November, positioning bank stocks as a safe haven amidst the ongoing ambiguity in rates and tariffs. Additionally, they offer the potential for dividend income while investors await further market clarity.

Here are four bank stocks to consider for navigating this uncertain landscape involving tariffs and interest rates.

Investors should carefully evaluate fundamental metrics to identify strong bank stocks. When selecting bank stocks based on favorable regulatory changes, traditional technical indicators such as moving averages may not be as relevant for longer-term holdings.

Instead, focusing on the Price-to-Book (P/B) ratio and Return on Equity (ROE) can provide more accurate insights. Furthermore, the net interest margin (NIM) serves as a vital metric for assessing bank profitability, as it gauges the difference between interest paid on deposits and interest earned from loans. NIM typically reduces when rates rise because tighter lending conditions can lower loan issuance while raising interest for depositors. Contrarily, when rates remain stable or fall, overall banking activity tends to increase, enhancing NIM.

A healthy NIM can vary based on the bank's size and types of loans extended. However, a bank reporting a negative NIM during a flat or declining rate environment may face significant challenges.

For the selections in this analysis, we focused on banks exhibiting a P/B ratio between 1.00 and 2.00, an ROE exceeding 9%, and an NIM above the industry average of 3%.

Bank of America (NYSE:BAC)

Bank of America, one of America’s largest banking institutions, is presenting an attractive investment opportunity heading into 2025. The bank saw its share prices rise by over 30% in 2024, and based on current metrics, this upward trend may persist. With a market cap of $352 billion, BAC operates across all 50 states, providing a range of services, including personal, commercial banking, investment management, mortgage services, and more.

Despite facing a nearly 25% drop in July 2024, Bank of America’s stock has rebounded significantly, recently achieving an all-time high, surpassing the previous record of $46.31 set in January 2022. Bank of America currently reports a P/B value of 1.31 and an ROE of 9.2%, backed by a forward P/E ratio of 10.65 and a dividend yield of 2.35%. In January, BAC received two Buy ratings from firms Morgan Stanley and Oppenheimer, along with a Hold designation from Piper Sandler, with a collective average price target of $53, indicating a possible 15% upside from its closing price of $46.25 on January 31.

Goldman Sachs Group (NYSE:GS)

Goldman Sachs has diversified into consumer banking, but its core focus lies in investment banking, wealth management, and market making. Recognized as one of the more prestigious financial institutions on Wall Street, Goldman serves a diverse clientele, including individuals, corporations, and governments. The bank boasts a market cap of $200 billion and employs over 46,000 individuals.

Over the past year, GS shares have surged nearly 70%, largely due to robust revenue growth. The firm reported a year-over-year quarterly revenue increase of 7.5%, significantly ahead of competitors, driving the stock to new highs around $650 per share. Goldman Sachs holds a P/B value of 1.88 with a forward P/E of 12.4, suggesting a slight premium, but its ROE of 12% bolsters investor confidence. The stock also offers a dividend yield of 1.96%, with reiterated Buy ratings from Morgan Stanley and Barclays on January 16, setting price targets of $782 and $760, respectively.

HSBC Holdings plc (NYSE:HSBC)

Next, we turn to HSBC Holdings, one of the largest and oldest banks based in London, operating in multiple segments: Personal, Commercial, and Global Markets. HSBC has a market cap of $187 billion and offers an impressive dividend yield of 7.95%.

While the Bank of England currently holds its prime rate higher than the U.S. Federal Funds rate, predictions suggest a lowering of that rate to around 4.5% shortly. Falling interest rates can present challenges for banks, but HSBC appears well-equipped to manage potential shifts, having reported a 6.8% quarterly revenue growth year-over-year. The bank features a P/B value of 0.99 and an ROE of over 12%, combined with a forward P/E of 8.36, indicating it may currently be undervalued.

Bank of New York Mellon (NYSE:BK)

Lastly, we examine Bank of New York Mellon, the smallest institution on our list, with a market cap just over $17 billion. This bank, founded in 1784 in New York City, specializes in investment banking and wealth management and manages a robust portfolio of securities through ETFs and mutual funds. Though smaller in size compared to other large banks, BNY Mellon employs 52,000 staff members, exceeding the workforce of Goldman Sachs.

So far this year, BK stock has risen by 12% and realized more than a 40% gain in 2024. Valuation metrics suggest BK is a favorable investment with a P/B value of 1.55, comfortably sitting within the desired range of 1% to 2%. The bank also has an impressive ROE exceeding 11% and a forward P/E of 11.3. While Bank of New York Mellon may not have the same recognition as industry giants like Goldman Sachs or JPMorgan Chase, it has been delivering quality investment management services for nearly 150 years, making its stock a promising choice moving into 2025. Furthermore, its dividend yield surpasses that of Goldman Sachs by almost 15%.banks, investment, stocks, economy