Just when you thought the banking sector fallout was behind us, rumblings in Europe confirmed that bank stocks once again will likely dominate business news outlets for weeks to come. While the mainstream media can sometimes lead to ambulance-chasing histrionics, this time around, the anxieties appear justified. Still, I thought it would be a nice contrarian exercise to consider the financial institutions least likely to fail.
Now, some of my colleagues have asked ChatGPT to deliver an artificial intelligence-driven answer. However, for our purposes today, I consulted Gurufocus’ stock screener for the probability of financial distress. The below bank stocks – per the investment resource – represent an elite few that likely will not collapse.
JPMorgan Chase | $129.09 | |
Bank of America | $28.48 | |
Wells Fargo | $37.57 | |
HSBC Holdings | $33.60 | |
Royal Bank of Canada | $93.64 | |
HDFC Bank | $64.60 | |
Toronto-Dominion Bank | $57.82 |
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JPMorgan Chase (JPM)
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The inclusion of JPMorgan Chase (NYSE:JPM) as one of the bank stocks least likely to fail shouldn’t surprise anyone. That’s not to say it didn’t suffer from the sector fallout because it did. Since the Jan. opener, JPM slipped almost 8%. Still, 8% isn’t 80%. As well, the company features a robust $379 billion market capitalization. More than likely, it’s going to stick around for some time.
According to Gurufocus, JPMorgan’s probability of distress pings at 0.06%. Obviously, that’s not anything but it’s as close to nothing as you’re going to get. It has other stats going for it as well. For example, the financial institution’s three-year free cash flow (FCF) growth rate stands at 205.3%, outpacing nearly 98% of the competition. Also, its return on equity (ROE) comes in at 13%, indicating a high-quality business.Finally, Wall Street analysts peg JPM as a consensus moderate buy. Notably, their average price target stands at $154.93, implying 24% upside potential.
Bank of America (BAC)
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A multinational investment bank and financial services firm, Bank of America (NYSE:BAC) is one of the big four financial firms. For full disclosure, BAC did suffer more than JPMorgan Chase above. Since the Jan. opener, BAC gave up 19% of equity value. In the past 365 days, it slipped 38%. However, it’s still one of the biggest bank stocks with a market cap of over $228 billion.
According to Gurufocus, Bank of America’s probability of distress comes out to 0.38%. Percentage-wise, it’s much higher than JPM. Still, we’re talking about an overall minuscule scale. Further, BofA enjoys decent, slightly above-average performance metrics. For instance, its three-year revenue growth rate of 6.4% ranks better than 52.2% of the industry.Lastly, covering analysts peg BAC as a consensus moderate buy. Notably, the three most recent assessments represented reiterations of buy targets. Overall, the experts anticipate BAC hitting $38.80, implying 43% upside potential.
Wells Fargo (WFC)
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A member of the big four bank stocks, Wells Fargo (NYSE:WFC) in recent years courted some ugly controversies. Nevertheless, it finds itself as one of the least likely financial institutions to fail. Interestingly, since the Jan. opener, WFC gave up more than 13% of equity value. That makes WFC slip in somewhere between JPMorgan Chase and Bank of America.
Per Gurufocus, the investment resource calculates Wells’ probability of distress at 0.32%, a bit below BAC’s probability. Again, we’re talking about extremely low chances. Regarding other financial metrics, Wells benefits from consistent profitability. Over the past decade, it posted 10 years of profitability.
As well, WFC trades at 1.91 times trailing sales. As a discount to revenue, Wells ranks better than 61.48% of competing bank stocks.Turning to Wall Street, analysts peg WFC as a consensus moderate buy. To be fair, the two most recent assessments came out as holds. However, overall, the average price target is $52, implying almost 44% upside potential.
HSBC Holdings (HSBC)
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A British multinational universal bank and financial services firm, HSBC Holdings (NYSE:HSBC) differs from the U.S. major bank stocks in that it’s up for the year. Specifically, since the Jan. opener, HSBC gained almost 5% of its equity value. And in the trailing year, it’s only down 3.3%.
From Gurufocus’ stock screener, it calculates the enterprise’s probability of distress at 0.05%. To be sure, that’s lower than even JPMorgan Chase’s forecast. Looking at other financial metrics, HSBC benefits from consistent profitability. In the past decade, the company posted 10 years of net income.Moreover, the market prices HSBC at a forward multiple of 6.05. As a discount to projected earnings, the company ranks better than 69.74% of rival bank stocks.
Finally, investment firm CFRA pegs HSBC as a buy. Further, it projects that shares will hit $43, implying 30% upside potential.
Royal Bank of Canada (RY)
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Based in its namesake country, Royal Bank of Canada (NYSE:RY) is the largest bank in Canada by market cap. Presently, it features a market value of slightly over $129 billion. Since the Jan. opener, RY declined by almost 2%, which of course is a shame. Up until early Feb., RY was off to an auspicious start. In the past 365 days, it’s down nearly 19%.
According to Gurufocus, the investment resource calculated Royal Bank’s probability of distress at 0.05%. That’s not terribly surprising given its bottom-line focus. In the past decade, the company delivered 10 years of profitability. Also, its ROE stands at 14.18%, reflecting its high quality. Operationally, Royal Bank’s three-year book growth rate pings at 10.1%, above 72.42% of the industry.
Looking to the Street, analysts peg RY as a consensus moderate buy. The two most recent assessments feature a split vote: one hold, one buy. Overall, the experts’ average price target stands at $102.09, indicating nearly 11% upside potential.
HDFC Bank (HDB)
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Headquartered in Mumbai, India, HDFC Bank (NYSE:HDB) is its country’s largest private sector bank by assets. Also, as of April 2021, HDFC ranked as the tenth largest bank by market cap. Since the start of the year, HDB has been fairly choppy, shedding more than 7% of equity value. However, in the past 365 days, it’s up more than 5%.
Per Gurufocus, it calculated the probability of distress for HDFC Bank at 0.03%. Moreover, accompanying financial metrics bolster this extremely low probability. For instance, the company’s equity-to-asset ratio comes out to 0.12 times, above the industry median of 0.09 times. Operationally, HDFC’s three-year revenue growth rate pings at 14.1%, above 81.41% of other bank stocks.
Conspicuously, the enterprise posted a net margin of 37.86%, a robust figure. As well, its ROE is 16.53%. Currently, no analysts cover HDB stock, though this could change based on its comparative performance.
Toronto-Dominion Bank (TD)
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Finally, rounding out this list of bank stocks that are least likely to fail is Toronto-Dominion Bank (NYSE:TD). Headquartered in Toronto, Ontario, TD is one of the largest financial firms in Canada by total assets and also by market cap. Since the January opener, TD stock gave up nearly 12% of its equity value as fears rippled across the underlying sector.
Nevertheless, Gurufocus calculates that the probability of distress for Toronto-Dominion Bank is 0.15%. To be blunt, TD doesn’t have the greatest strength in the balance sheet right now. However, on the profitability front, the company features a net margin of 32.09%. This stat ranks above 66.25% of the underlying banking sector.In addition, TD’s price-to-projected-free-cash-flow (FCF) ratio sits at 0.2 times. In contrast, the sector median is 0.45 times.
Lastly, covering analysts peg TD as a consensus moderate buy. Their average price target stands at $74.21, implying over 31% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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