Four bankable stocks to profit from as interest rates rise

Recent rally has driven valuations up, but they remain attractive propositions.

Vikram Barhat 18 January, 2017 | 6:00PM
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Strength in the U.S. job market, a brighter economic outlook, rising consumer spending and the Federal Reserve's decision to start raising interest rates are indicators that conspire to create a tailwind for the U.S. banking sector.

Banks that have been working through performance issues now seem better positioned to benefit from future rate increases. Also, there is a widely held belief that the Trump administration will curtail a slew of regulations introduced in the aftermath of the 2008 financial crisis, improving prospects for the financial services industry.

In 2016, financial services was the second-best performing sector in the United States, not far behind energy. The S&P Banks Select Industry Index produced a total return of more than 31% over the calendar year, more than doubling the S&P 500's 12% total return. This strong performance has indeed led some of these bank stocks to trade above their fair value estimates. However, a closer look at their valuations reveals they are trading at price-to-earnings multiples that are still below industry and S&P 500 averages, indicating further upside potential.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Berkshire Hathaway Inc Class B276.76 USD-0.27Rating
Citigroup Inc69.96 USD-0.06Rating
JPMorgan Chase & Co157.68 USD-0.26Rating
U.S. Bancorp57.01 USD-0.16Rating
Wells Fargo & Co46.47 USD0.41Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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