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Do the Latest Analyst Ratings of Banks Suggest that It’s Time to Buy Bank Stocks?

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Analyst recommendations as of February 12

Of the 680 analysts covering the 21 banking stocks in the Financial Select Sector SPDR ETF (XLF), 358 have assigned “buy” ratings, 28 have given “sell” ratings, and 294 have issued “hold” ratings. Wall Street (SPY) analysts are the most upbeat about Bank of America (BAC), as it has received “buy” ratings from 31 analysts, among the 37 analysts covering the stock. While seven analysts are of the view that investors should continue holding this stock, none believes the stock should be sold.

By contrast, analysts are most negative about the performance of Comerica (CMA), as its stock has received the highest number of “sell” ratings. Out of the 33 analysts covering Comerica’s stock, four believe the stock should be sold, 24 have rated it a “hold,” and five have assigned “buy” ratings.

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Valuations and RSI

Banking companies are trading at an average PB (price-to-book) multiple of 0.94x. Bank of America (BAC) is the cheapest stock, with a PB multiple of 0.53x, while US Bancorp, with a PB ratio of 1.68x, is most overvalued.

RSI is a technical momentum indicator used to determine overbought or oversold conditions. An asset is deemed to be overbought once its RSI approaches the 70 level, meaning that it may be getting overvalued and that it may be a good candidate for a pullback. On the other hand, if an RSI approaches 30, it is an indication that the asset may be getting oversold and thus is likely to become undervalued.

On average, the banking stocks in XLF’s portfolio have a 14-day RSI (relative strength index) of 40, suggesting that they are still not oversold. Bank of America and Citigroup (C), with RSIs of 33 and 35, respectively, are closer to the oversold territory. Meanwhile, J.P. Morgan Chase (JPM) and US Bancorp (USB), with RSIs of 48 and 46, respectively, are comparatively better off.

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