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6 Bank Stocks That Could Be Winners in 2021

6 Bank Stocks That Could Be Winners in 2021
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By    |   Wednesday, 25 November 2020 11:40 AM

Investors in banks hope that amid the hopes of successful COVID-19 vaccines, there will be an eventual return to normal economic activity and fewer troubled loans.

Banks added billions to their reserves in anticipation of future loan losses earlier this year as the pandemic took hold of the world in nearly every imaginable aspect.

The U.S. bank sector has been pummeled this year but investors hunting for bargains there may need deep reserves of patience as banks are particularly sensitive to low interest rates, the uneven economic recovery and the muddy stimulus outlook.

Bank analysts at Hovde Group took a look at individual names to see which banks are more likely to be able to release their reserves on improving credit quality and see a boost to earnings, Barron's recently reported.

Home Bancshares (HOMB), Hancock Whitney (HWC), South State (SSB), WesBanco (WSBC), Umpqua Holdings (UMPQ), and MVB Financial (MVBF) topped their list.

The six banks’ loan loss reserves as a percentage of total loans are higher than other banks in Hovde Group’s coverage universe, suggesting they may be over-reserved if economic conditions improve.

“Assuming the vaccine begins to rollout next year and becomes broadly available at some point, those institutions able to pivot faster to offense are likely to be the winners in 2021,” Brett Rabatin, head of research at Hovde Group, wrote in a recent note.

In addition, Jefferies raised its rating on financial stocks to "bullish" from "modestly bullish" on Wednesday, citing loosened lending conditions and new hopes for a near-term vaccine, Business Insider explained.

Bank stocks are among the most sensitive to macroeconomic trends, and the latest COVID-19 surge "is likely to lead to some weaker economic data and potentially higher impairment charges," the team led by Sean Darby said in a note.

Bank stocks in general have been trending higher on the optimistic COVID vaccine news.

Meanwhile, some investors are unconvinced that recent gains will be sustainable as the Federal Reserve has signaled plans to keep overnight rates low for the foreseeable future in order to aid an economic recovery, which is expected to take years, Reuters reported.

“You’re looking at years for this sector to make a full recovery. It will take a lot of positive things to happen in the U.S. economy for it to get back to the type of performance we are seeing in the broader S&P," said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey. "Investors, in my view, will need to be patient."

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Investors in banks hope that amid the hopes of successful COVID-19 vaccines, there will be an eventual return to normal economic activity and fewer troubled loans.
bank stocks, winners, 2021
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2020-40-25
Wednesday, 25 November 2020 11:40 AM
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