The U.S. banking industry is expected to benefit from the long-awaited interest rate hike. But not all of them could translate it to profit and reward their shareholders.
Banking profits soared nearly seven percent in the first quarter of 2015 compared to the same period of time in 2014. The majority of banks reported higher earnings during the quarter compared to last year. (Source: FDIC, last accessed August 5, 2015.)
Meanwhile, the KBW index, which tracks the stocks of 24 banks, is up by nearly six percent this year. While not every bank stock is poised to deliver eye-popping returns, some are. So with that in mind, here are three top financial stocks to watch in 2015.
Stocks to Watch
JPMorgan Chase & Co. (NYSE:JPM)
JPMorgan Chase & Co. (NYSE:JPM) stock has risen nearly 10% this year. In the second quarter, net income increased to $6.3 billion—a five percent increase from the previous quarter. Earning per share rose from $1.45 per share in 2014 to $1.54 in 2015, which is significantly higher than the industry’s average. (Source: J.P Morgan, last accessed August 10, 2015.)
On the other hand, the company has managed to lower its expenses by six percent down to $14.5 billion. JPMorgan’s average return on equity is at 10%—higher than the nine percent in 2013, indicating that management has been able to manage legal expanses significantly and improve its business efficiency. (Source: JPMorgan, last accessed August 10, 2015.)
All told, JPMorgan has had 25 consecutive quarters of positive net long-term flows to assets under management. This raised its assets under management to $2.7 trillion.
To put all these numbers in perspective, the company is expected to lower its operation cost which could lead to a higher return on equity. Moreover, with rising assets under management, the company is set to increase its earnings for the coming quarters.
Bank of New York Mellon Corporation (NYSE:BK)
The Bank of New York Mellon Corporation (NYSE:BK) is one of the oldest financial institutions in the world with a relatively small cap size compared to the average industry. The Mellon stock price rose 9.6% this year which is significantly higher than the industry average. (Source: Bank of New York Mellon, last accessed August 10, 2015.)
Mellon provides investment management, investment services, and wealth management to their customers in 35 countries. In 2014, the company increased its asset under management to $28.6 trillion—higher than the $27.6 trillion in 2013 which led to an increase in market capitalization of $45.0 billion (14% higher than the previous year). (Source: Bank of New York Mellon, last accessed August 10, 2015.)
Remarkably, the company managed to lower its expenses in the second quarter of 2015 by seven percent compared to the same period in 2014.
Notably, earnings per share landed at $0.73—52% higher than the $0.48 per share in 2014. The most crucial factor in bank’s profitability is that their return on equity improved to 10.7% above the industry’s average.
With declining legal expenses and the completion of expense restructuring that initiated in early 2014, Melon is expected to increase its return on equity. This could very well increase its share price.
Wells Fargo & Company (NYSE:WFC)
Wells Fargo & Company (NYSE:WFC) has been reportedly mentioned by investors to be one of the most well-structured banks in the world. Back in 2008, when most banks lost their value dramatically, Wells Fargo shares gained about two percent. (Source: Wells Fargo & Co., last accessed August 10, 2015.)
With $1.7 trillion in assets, Wells Fargo is America’s fourth-largest banking company. The company’s 12.6% return on equity is also well above the industry average.
Not only does the stock itself have a huge potential to gain over the coming years, for additional income, this bank is a solid choice for dividend lovers. Wells Fargo has raised its dividend each year since 2011 and currently has a 2.6% yield. With the low below 50% payout ratio and improving outlook for the banking industry, the company will likely increase its payout ratio this year.
Although Wells Fargo’s stock only rose 5.2% this year, all the evidence suggests more growth and higher earnings for this bank are yet to come.