2 Bank Stocks To Buy On The Dip, According To BMO

Investors are still reeling from this week’s big market sell-off, but BMO Capital Markets says investors shouldn’t hesitate to jump in and buy a pair of bank stocks on the dip.

The Analyst

BMO analyst Lana Chan upgraded BB&T Corporation BBT from Market Perform to Outperform and set a $64 price target for the stock. Chan also upgraded TCF Financial Corporation TCF from Market Perform to Outperform and set a $27 price target.

The Thesis

According to Chan, the market dip provides an excellent entry point for investors hoping to capitalize on two bank stocks with a lot going for them in 2018.

For TCF, Chan says the stock trades as a significant discount to peers based on tangible book value and earnings, and the bank’s 12 percent earnings growth outlook for 2019 is respectable. Chan also says the decision to exit the auto loan business significantly lowered long-term risk.

“As TCF reduces credit risk with the exit of auto, it should be able to operate with a TCE ratio in the 8-9% range,” Chan said. BMO also says TCF should have plenty of flexibility to be aggressive with its capital returns.

For BB&T, Chan said near double-digit earnings growth, improving loan growth and an above-average 2.5 percent dividend yield makes the stock an appealing play in a very favorable environment for banks.

“While typically viewed as a high-quality bank, BBT is only trading in line with regional bank peers on forward P/E at 12x our 2019E EPS,” Chan wrote.

Price Action

Following the upgrades, both TCF and B&T were trading mostly flat in another weak day for the markets on Friday.

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