BofA: These 'buy' rated financial stocks are poised to outperform as the yield curve inverts

In that context, Bank of America singled out a group that could outperform going forward: financials.

In a note to investors, the bank’s head of U.S. equity and quantitative strategy Savita Subramanian writes that financials stand out due to their inflation-protected yield, low leverage and stable earnings.

“Financials outperformed 40% of the time during market sell-offs around yield curve inversions and 50% of the time during the full period of inversion.”

Earlier this month, BofA highlighted several ‘buy-rated’ bank stocks that could outperform in the turbulent times ahead.

Here’s a look at three of them with substantial implied upside.

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Signature Bank (SBNY)

Signature Bank is a full-service commercial bank with 37 private client offices throughout metropolitan New York and in Connecticut, California and North Carolina.

In Q4, total deposits increased 40% year over year to $106 billion. Net income increased 57% to a record $272 million.

While Signature shares are down 4% in 2022, they’re still up 40% over the past year.

BofA has a ‘buy’ rating on Signature and a price target of $450 — roughly 44% above where the stock sits today.

The projection is based on the expectation that Signature can “deliver above-average growth given significant EPS sensitivity to higher rates.”

SVB Financial Group (SIVB)

SVB Financial is a diversified financial services company serving the innovation economy. Its subsidiary Silicon Valley Bank provides wealth management and private banking services to companies in the technology, life science, venture capital and premium wine industries.

In Q4 of 2021, the bank’s average loans grew 5.5% to $62.6 billion. Net interest income improved 10.2% sequentially to $947 million.

Shares have tumbled 16% so far in 2022, but BofA sees a major rebound on the horizon: Its price target of $850 is 49% higher than where the stock currently trades.

Commenting on the price target, BofA says that it has assigned above-average multiples to SVB “due to a significantly higher return profile and stronger balance sheet growth outlook.”

But the bank is not calling it a slam dunk.

“Downside risks are a longer than expected low rate environment and a slowdown in the technology sector and related IPO activity.”

East West Bancorp (EWBC)

East West Bancorp is the holding company for East West Bank, which happens to be one of the few U.S. banks that also has a full banking license in China and decades of cross-border banking experience.

The bank has more than 120 locations in the U.S. and China.