XLF - KBW outlines 11 financials stocks to buy after SIVB SBNY fallout

2023-03-13 10:15:49 ET

The failure of both Silicon Valley Bank ( SIVB ) and Signature Bank ( SBNY ) prompted a selloff last week among financials stocks, but KBW sees "significant potential upside" in nearly a dozen of them for the near-term.

The market will likely believe that bank regulators "stuck the landing" after the Federal Reserve created a new lending facility on Sunday to help assure banks have the ability to meet the need of their depositors. Market participants still appear shook about the health of the banking system and potential contagion effects, as the Financial Select Sector SPDR ETF ( XLF ), -3.7% , and the KBW Nasdaq Bank Index ( BKX ), -12.4% , slide and add to last week's slumps.

"We also acknowledge that the regulators are walking a tightrope and if there are any significant missteps leading to additional depositor and investor fears, there could be more downside in the stocks," analyst Christopher McGratty wrote in a note.

All in, McGratty laid out 11 financials stocks to buy along with their upside potential:

Banks:

1. Western Alliance Bancorporation ( NYSE: WAL ), 75% upside, 1.2x tangible book value.
2. First Republic Bank ( NYSE: FRC ), 73%, 1.1x TBV.
3. U.S. Bancorp ( NYSE: USB ), 48%, 7x 2024 estimate.
4. Old National Bancorp ( NASDAQ: ONB ), 41%, low-risk balance sheet, 7x 2023E.
5. SouthState ( NASDAQ: SSB ), 35%, high return on assets, 9x price-to-earnings.

Non-Banks:

1. Apollo Global Management ( NYSE: APO ), 49% upside, potential beneficiary of market dislocation, 8x 2024E.
2. American International group ( NYSE: AIG ), 45%, prospects of above-average underwriting margin expansion, 8.2x 2023E EPS.
3. AGNC Investment ( NASDAQ: AGNC ), 32%, minimal credit risk.
4. Reinsurance Group of America ( NYSE: RGA ), 31%, 3% above 2024E EPS.
5. Discover Financial Services ( NYSE: DFS ), 23%, 7x 2024E EPS, 2.0x TBV.
6. American Express ( NYSE: AXP ), 23%, mid-teens EPS growth, 13x 2024E EPS.

Sell-side analysts also favor Charles Schwab due to its strong liquidity profile, diverse deposit base as well as recent support from bank regulators to stem the damage from the collapses of SIVB and SBNY.

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