3 Best Stocks to Buy in the Thriving Savings & Credit Industry – August 6, 2021

Zacks’ savings and lending industry is likely to continue to register high creations, benefiting from low mortgage rates and strong housing demand. In addition, improving economy, picking up levels of consumer spending and stimulus packages are expected to foster loan growth and thus provide much needed support.

In addition, digitization and technological improvement efforts should support the industry in the short term. Thus, some industry players like New York Community Bancorp (NYCB Free report), Provident Financial Services, Inc. (PFS Free report) and West Bancorporation, Inc. (WTBA Free Report) are poised to benefit from these developments.

Industry Description

Zacks’ savings and credit industry is made up of specialty US banks that are typically locally owned and focused on expanding residential mortgage financing. Companies in the sector offer residential mortgages, commercial and industrial mortgages, home equity loans, auto loans and other commercial loans. These institutions finance mortgages with savings provided by the Federal Deposit Insurance Corporation (FDIC). They usually offer high interest rates on savings to attract deposits, thus improving their ability to lend mortgages. Although businesses operate in the same way as commercial banks by providing various banking services, such as checking and savings accounts, they were previously legally required to invest at least 65% of their assets in mortgages. A decision, which came into effect on July 1, 2019, lifted this restriction for establishments insured by the FDIC.

3 savings and lending industry trends to watch

Mortgage arrangements to remember: Despite the supply chain and higher price issues, low mortgage rates continue to encourage Americans to buy homes. The low interest rate environment is expected to continue as the Federal Reserve has indicated it will keep rates near zero in the near term. These should continue to drive fixtures over the current year and will drive industry growth over the next few quarters. In fact, going through the MBA Mortgage Financing Forecast, single-family home purchase arrangements are expected to increase in 2021. In addition, outstanding mortgage debt is also expected to increase in 2021. As a result, savings and loan associations are placing more emphasis on mortgages. residential, this trend should strengthen the outlook for the industry.

Growth of loans in cards: The macroeconomic outlook for the United States is turning favorable with the reopening of the economy and encouraging progress on the vaccination front. Levels of consumer spending are also picking up and could be robust in the coming period. In such a scenario, the normalization of consumer behavior will boost mortgage, business, educational and auto lending. This should inspire the confidence of borrowers and support the demand for loans. Therefore, loan growth, despite low interest rates, is likely to support corporate net interest income and margins to some extent.

Upcoming digitization initiatives: A number of challenges have arisen for savings and loan associations, including legacy technologies and an unbalanced customer base. Thus, these companies have made efforts to accelerate the transition to diligently driven, technology driven and flexibly functioning institutions, in order to stay competitive and reap profits in a rapidly changing market. While technology upgrades are expected to drive up short-term non-interest charges, they will support business finances and increase market share over time.

Zacks Industry Rankings Shows Strong Outlook

The group’s Zacks Industry Rank, which is essentially the average of the Zacks Rank of all member stocks, indicates good prospects for the near term.

Zacks’ Savings and Loans industry currently holds a No.57 Zacks Industry Rank, which places it in the top 23% of over 250 Zacks industries. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of industries ranked by Zacks is the result of bright earnings prospects for the constituent companies as a whole. Looking at the revisions to the overall earnings estimates, it appears that analysts are gaining confidence in the earnings growth potential of this group. Remarkably, the industry’s profit estimates for the current year have been revised up 64.7% since August 2020.

Before presenting a few stocks that you might want to consider for your portfolio, let’s take a look at the recent stock market performance and industry valuation.

Industry Outperforms Sector and S&P 500

The Zacks Savings and Loan Industry, a group of 35 stocks within Zacks’ larger financial sector, has outperformed the S&P 500 and its own sector over the past year.

While stocks in this industry collectively rose 48.2%, the S&P 500 Composite gained 36.3%. During the same period, Zacks’ financial sector gained 36.9%.

One-year price performance

Image source: Zacks Investment Research

Current industry assessment

One can get a good idea of ​​the industry’s relative valuation by looking at its price-to-book ratio (P / TBV), which is commonly used to value financial companies due to the large variations in their results from quarter to quarter. the other. .

The industry currently has a 12-month P / TBV of 1.57X, below the median of 1.50X, over the past five years. This compares to the highest level of 9.97X and the lowest level of 0.84X during this period.

However, the sector is trading at a discount to the market as a whole, as the 12-month P / TBV ratio for the S&P 500 is 22.24X and the median level is 11.67X.

Price / tangible pound ratio (TTM)

Zacks investment research
Image source: Zacks Investment Research

Since financial stocks generally have a low P / TB ratio, comparing savings and loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P / TB ratio with that of its larger industry ensures that the group is trading at a decent discount. The 12 month P / TBV of Zacks Finance sector of 4.52X for the same period is higher than the respective ratio of Zacks’ savings and loans sector.

Price / tangible pound ratio (TTM)

Zacks investment research
Image source: Zacks Investment Research

3 savings and loan stocks to bet on

West Bancorporation, Inc.: Based in West Des Moines, IA, focuses on loan, deposit and trust services for consumers and small to medium-sized businesses. The company has seen a decent increase in loans spread across all of its markets over the past few quarters. A strong pipeline indicated by management is encouraging and will allow the company to achieve robust growth. Strategic efforts to expand the presence in Minnesota are expected to drive a further increase in lending, while the focus on commercial and industrial segments has supported strong growth in deposits and cash management activities. Credit trends are also expected to improve, with the company forecasting a bad loan sale next month.

West Bancorporation currently sports a Zacks Rank # 1 (strong buy). The consensus mark for current year earnings rose 10.5% to $ 2.95 last week. The company’s shares have returned 57.7% year-to-date. You can see The full list of today’s Zacks # 1 Rank stocks here.

Price and consensus: WTBA

Zacks investment research
Image source: Zacks Investment Research

New York Community Bancorp: The company provides traditional and non-traditional products and services, and access to multiple service channels, including online banking and mobile banking. It is also one of the leading producers of multi-family loans in New York.

The declining expense base of this Westbury, NY-based company (due to branch closures and the divestiture of unprofitable businesses) and efforts to expand through acquisitions should help finances. Recently, New York Community shareholders approved the proposed merger deal with Flagstar Bancorp, Inc. In addition, the current low interest rate environment is likely to support margins as its balance sheet is liability sensitive.

The stock currently carries a Zacks rank of 2 (Buy). Zacks’ consensus estimate for 2021 earnings has shifted 3.3% north to $ 1.26 over the past week. The company’s shares have climbed 14.7% during the period since the start of the year.

Price and consensus: NYCB

Zacks investment research
Image source: Zacks Investment Research

Provident Financial Services, Inc.: It is the holding company of Provident Bank that offers a variety of financial products and services through its branch network in northern and central New Jersey, as well as in Pennsylvania and Queens County in New York.

Provident Financial has significant exposure to mortgages, including residential mortgages, commercial mortgages and multi-family mortgages. Given the strong outlook for mortgage origination in 2021, the company should capitalize on this trend given its strong liquidity position. In addition, the recovery in consumer confidence should also boost its portfolio of commercial and industrial loans. Efforts to manage operating expenses and investments in new technologies offer long-term growth prospects.

The stock currently carries a Zacks rank of 2. The Zacks consensus estimate for 2021 earnings rose 8.7% north to $ 2.12 over the past week. The company’s shares have climbed 22.3% during the period since the start of the year.

Price and consensus: PFS

Zacks investment research
Image source: Zacks Investment Research

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