4 Banks to Buy Ahead of Trump's Deregulatory Blitz

The Federal Reserve kept rates steady last week, citing the struggle against last-mile inflation and the potential of tariff shocks to influence prices. While Chairman Jerome Powell's news conference was relatively low key, it did contain notes of uncertainty and traders are betting that a March rate cut could be out of the picture.

Markets would still prefer lower rates, but steady rates combined with a deregulatory push from the new administration could benefit one sector in particular — banks.

The banking sector has posted significant gains since the November election results and if rates and tariffs are creating uncertainty, bank stocks could be a safe haven until markets have more clarity — and earn you some dividends income while you wait. 

Here are the four bank stocks to buy for the tariff and interest rate uncertainty.

For banks, it's crucial to focus on certain fundamental metrics to find favorable stocks. If you're buying bank stocks based on regulatory tailwinds, using technical indicators like moving averages or momentum oscillators may align with long-term holding timeframes.

Instead, factors like Price-to-Book (P/B) ratio and Return on Equity (ROE) provide better clues. Additionally, net interest margin (NIM) is a crucial bank profitability metric since it measures the difference between interest paid on deposits and interest received on loans. NIM tends to decline when rates rise as lending conditions tighten, fewer loans are issued, and customer deposits earn higher interest. But when rates stay flat or decline, banking activity picks up, and NIM can grow.

A ‘good' NIM can fluctuate based on the size of the bank and the types of loans issued, but a bank with a negative NIM during a flat or declining rate environment could be in trouble.

For our selections here, we selected bank stocks showing a P/B ratio between 1.00 and 2.00, ROE above 9%, and NIM above the industry average of 3%.

Bank of America BAC

One of the oldest and biggest banks in America also has one of the most appealing stocks entering 2025. Bank of America gained more than 30% in 2024 and based on recent numbers, that momentum could continue. BAC has a $352 billion market cap and operates in all 50 states, specializing in personal and commercial banking, plus investment management, mortgage and brokerage services, wealth management, and a variety of market-making and lending operations.

BAC suffered a nearly 25% decline in July 2024, but has rebounded in the last few month and recently made a new all-time high, surpassing the previous mark of $46.31 set in January 2022. Bank of America currently has a 1.31 P/B value and a 9.2% ROE, with a forward P/E ratio of 10.65 and a dividend yield of 2.35%. BAC received two Buy ratings from Morgan Stanley and Opperheimer in January, along with a Hold reiteration from Piper Sandler. The average price target from these three is $53, indicating a potential upside of 15% from the January 31 closing price of $46.25.

Goldman Sachs Group GS

Goldman Sachs has dabbled in consumer banking, but its true focus in investment banking, wealth management, and market making. Goldman is one of the more prestigious Wall Street banks, serving individual, corporate, institutional, and governmental clients. The company currently has a $200 billion market cap and employs over 46,000 people.

GS shares are up nearly 70% over the last 12 months, thanks in large part to significant revenue growth. The company has grown quarterly revenue 7.5% year-over-year, far surpassing our other bank stock picks and pushing the stock to new all-time highs at $650 per share. Goldman Sachs has a 1.88 P/B value and 12.4 forward P/E, indicating a slightly-elevated value, but the 12% ROE should assuage investors. The stock pays a 1.96% dividend yield and received two reiterated Buy ratings on January 16 from Morgan Stanley and Barclays with $782 and $760 respective price targets.

[GET A CHARTER MEMBER DISCOUNT TO ‘BENZINGA TRADE ALERTS'- 200 SPOTS ONLY]

HSBC Holdings plc HSBC

We're heading across the pond for our next stock selection to London's HSBC Holdings, one of the largest and oldest banks in England (you might be sensing a theme). HSBC operates in three banking segments: Personal, Commercial, and Global and Markets. The bank has a $187 billion market cap and pays a handsome 7.95% dividend yield.

The Bank of England currently has its prime rate set higher than the Federal Funds rate, but the institution is expected to drop that rate to 4.5% in the coming weeks. Falling rates aren't always good news for banks, but HSBC is positioned to absorb any shock thanks to 6.8% quarterly year-over-year revenue growth. The stock has a 0.99 P/B value and its current ROE is over 12%. The forward P/E of 8.36 also indicates an undervalued security.

Bank of New York Mellon Co BK

Bank of New York Mellon is the smallest entry on our list with a market cap of just over $17 billion. But while it lacks in size (at least compared to the heavy hitters listed above), its stock packs a punch. The bank was founded in New York City in 1784 and specializes in investment banking and wealth management, and offers its own securities through ETFs and mutual funds. Despite the smaller market cap, the company actually has more employees than Goldman with 52,000 full-time staff.

BK stock is already up 12% year-to-date after gaining more than 40% in 2024. In terms of valuation metrics, BK looks like Baby Bear's porridge — just right. The bank sports a 1.55 P/B value, right in between our guideline of 1% to 2%. It also tops 11% ROE and has a forward P/E of 11.3. While Bank of New York Mellon doesn't get the recognition of a Goldman Sachs or JPMorgan Chase, its been offering quality investment management services for nearly 150 years, and its stock has a promising outlook in 2025. Plus, the dividend yield is nearly 15% higher than what Goldman is offering.

Secure your discounted charter membership to the new ‘Benzinga Trade Alerts'- before Monday’s public launch. And start receiving weekly simple trade alerts targeting 150%, 237%, and 664% gains. Secure Your Spot Here.

Image Via Shutterstock