3 Big Banks That Passed the Stress Tests With Flying Colors

Josh Enomoto

Mon, Aug 21, 2023, 6:30 PM 4 min read

For example, in late June, Seeking Alpha reported that all 23 banks that the Federal Reserve stress-tested under a hypothetical recession met minimum capital requirements. That’s one hurdle. Another hurdle came in the form of the second-quarter earnings season. Here, some of the top institutions managed to distinguish themselves from their high-level peers.

Of course, that’s not to say that if your favorite firm isn’t on this list of big bank stocks, you should infer negative intent. Rather, if I had to engage the financial sector, these are the ideas I’d be willing to put into my portfolio. With that, below are arguably the best bank stocks to consider.

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JPMorgan Chase (JPM)

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A multinational financial services firm, JPMorgan Chase (NYSE:JPM) has to be in the discussion when it comes to the best bank stocks to buy. No, it doesn’t offer the most value-rich enterprise – not by a long shot. And it’s not particularly exciting in terms of capital gains, moving up a bit over 10% since the Jan. opener. However, commanding a market capitalization of just under $433 billion, JPM enjoys a massive footprint.

In other words, this company isn’t going anywhere. If JPM ends up sinking, we would have far bigger problems on our hands. Right now, circumstances appear relatively stable for JPM. In the past 365 days, it posted a return of almost 26%. Further, it carries a forward yield of 2.69%. While not the most generous yield, the payout ratio sits at 27.39%.

Looking at its financials, JPM posted total revenue of $38.58 billion in Q2, up nearly 26% on a year-over-year basis. Further, this upswing included gains in both interest income and non-interest income (such as wealth management services). Thus, it’s a solid idea for big bank stocks.

Bank of America (BAC)

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Another multinational investment bank and financial services firm, Bank of America (NYSE:BAC) is the second-largest name among big bank stocks. Fundamentally, BofA may offer a sort of “Goldilocks” idea: while not as massive as JPMorgan Chase, it also offers some relatively attractive valuation metrics. Since the start of the year, BAC slipped more than 13% in equity value. In the trailing year, it’s down 18%.

Financially, its metrics aren’t exactly remarkable. However, trading at a forward multiple of 8.58x and a tangible book multiple of 1.25x, BofA offers a better read than JPM, which prints a forward multiple of 9.84x and a tangible book multiple of 1.97x. While it’s a bit risky to mention because of the unpredictability of even the best bank stocks, BAC also trades at 0.27x discounted cash flow (lower than 86% of its peers).

Significantly, BofA saw non-interest income of $11.04 billion in Q2, up nearly 8% YOY. Overall, total revenue came in at $25.2 billion, up 11% against the year-ago quarter.

Bank of Montreal (BMO)

bank customer sliding money to teller at bank desk

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A powerhouse name among the global best bank stocks, Bank of Montreal (NYSE:BMO) offers investing banking and financial services. Currently, BMO carries a market cap of $59.8 billion. Since the beginning of this year, shares lost a bit more than 8% of equity value. In the trailing one-year period, they slipped nearly 19%. However, it’s also one of the entities that passed the bank stress tests.

Like the other major financial institutions on this list, I wouldn’t call BMO remarkable in terms of valuation. Right now, shares are priced at a forward earnings multiple of 8.57x, which is in line with Bank of America. However, BMO trades at 1.57x tangible book value, which splits the difference between BofA and JPMorgan Chase.

At the same time, its most recent financial performance deserves a closer look. Overall, total revenue for the quarter ended April 30, 2023, came in at $6.22 billion, up almost 38% from the $4.52 billion posted one year ago. Significantly, non-interest income was $2.65 billion, up over 85% YOY.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.