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What are we looking for?

U.S. banking giants poised to continue their streak of revenue and earnings growth.

Rising U.S. interest rates, economic expansion and declining corporate taxes have created a near-perfect growth environment for U.S. banks. This earnings season has already seen stunning results turned in by banking giants Bank of America Corp. and JPMorgan Chase & Co. Both delivered second-quarter results that exceeded analysts’ expectations – by significant margins. In spite of these developments, investors have been cautious, with the SPDR S&P Bank ETF (KBE-NYSE) climbing just 1 per cent year-to-date. As a result, many U.S. banking giants now find themselves with very attractive price-to-earnings ratios.

The screen

We will be using Trading Central Strategy Builder to search for U.S. bank stocks with strong earnings and revenue growth, reasonable valuations and attractive dividend yields.

We will start by screening for U.S. bank stocks with a market capitalization of at least US$50-billion. This will focus our search on giants of the American banking industry, as identified under Morningstar’s Major Banks classification. In order to consider only banks with the majority of their exposure to the U.S. economy, we will also exclude any interlisted Canadian banks trading on U.S. exchanges.

To focus on companies that have demonstrated strong earnings and revenue growth, we will select stocks with a quarterly revenue growth of at least 5 per cent (this quarter compared with the same quarter last year) and quarterly earnings-per-share growth of 10 per cent or more. We will also filter by dividend yield to select only banks with an annual dividend yield of at least 1.5 per cent.

Finally, to ensure we consider only banks with reasonable valuations, we will screen for forward P/E ratios of 15 or less.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.

What we found

Topping our list is UBS Group AG with a 4.3-per-cent dividend yield and a forward P/E ratio of just 9.8. The low P/E ratio is a result of a steep slide in the company’s stock price since January; UBS is now down 17 per cent year-to-date based on cautious guidance it gave following its first-quarter results.

JPMorgan Chase & Co. is the largest bank on our list with a market cap of US$376-billion. Its stock price has been mostly flat year-to-date. However, on July 13, the company announced second-quarter earnings that handily beat analyst expectations for both revenue and earnings. The stock has since rallied by approximately 4 per cent.

The highest EPS growth rate on our list belongs to Bank of America Corp., at 51.2 per cent. Bank of America also has the second-lowest P/E ratio at 12. The company’s second-quarter earnings delivered on July 16 surprised to the upside on both revenue and earnings.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Peter Ashton is vice-president of customer success at Trading Central.


Rank Company Symbol Recent Price (US$) Mkt. Cap. (US$ Bil.) Fwd. P/E Ratio EPS Growth (Last Qtr. vs Prior Yr.) Rev. Growth (Last Qtr. vs Prior Yr.) Div. Yield
1 UBS Group AG UBS-N 15.40 57.1 9.8 25.1% 12.4% 4.3%
2 JPMorgan Chase & Co. JPM-N 111.53 376.2 12.5 43.6% 18.5% 2.2%
3 Bank of New York Mellon Corp. BK-N 55.64 54.6 14.0 32.5% 16.8% 1.8%
4 Bank of America Corp. BAC-N 30.13 304.3 12.0 51.2% 8.2% 1.7%
5 PNC Fin'l Services Group Inc. PNC-N 142.41 65.8 13.5 24.0% 8.4% 2.8%
6 US Bancorp USB-N 50.72 84.3 12.5 17.1% 6.2% 2.4%

Source: Trading Central