MPower: Can You Bank On These Stocks Long-Term?
With all the talk of rising interest rates, I started to think about how the banks have performed. However, with this latest bull run, it’s hard to say if they are reacting to increased interest rates or if these boats are being lifted by the rising tide.
During these market cycles, banks are supposed to see increased profits when these rates rise as they can charge more for their loan services. Given that rates are set to rise into next year, I thought now might be a good time to look at these for a long-term position.
Given the backdrop, it’s hard to find many stocks that are up on the year. However, stocks have been mounting an impressive comeback over the past several weeks, and if that continues, bank stocks could come very much back into play.
Periods of high CPI or interest rates aside, the names I have pulled up are just great businesses. Notable investors agree. Warren Buffett has long been an investor in Bank of America (BAC) thanks in large part to how well the business is run.
One of the necessities of life are banks and the services they provide. Without the investing and lending of banks into projects ranging from funding the next big startup to building the new apartment complex down the street, we wouldn’t be able to build the world around us.
Furthermore, these names pay a dividend for those looking to add to their income. The added income can help individuals stay ahead of rising CPI, which thankfully stayed mostly flat last month.
If the Fed can successfully beat back CPI, stocks should continue to rise.
However, will the Fed cutting rates cut into your gains on these names? My humble opinion, not quite. While in the short term this could mean profits could be lower, in the long run, these stocks would fit nicely into just about any portfolio.
Remember, these are proven businesses that have stood the test of time and just about every bear market there’s been. This means something when you’re looking to add to your holdings.
Speaking of dividends, senior fellow for the Tax Policy Center Thornton Matheson, stated that the buyback tax that is being proposed could cause companies to shift to increased dividend payouts, as they look for a work around to the additional tax.
All of this is to say that the outlook for financials, at least for the short-term, looks bullish as in addition to the reasons mentioned above, they are also trading at attractive valuations, well off highs.
I encourage you to run analysis on a couple of names in the financial sector. Starting with comparing names you are interested in, running through their most recent earnings reports, and taking the temperature of the market.
Then, you can rest assured that when you finally purchase those shares, you have done all the necessary due diligence. Now, the fun part. Sitting back and watching your portfolio value over time.
Today’s feature: Financials