This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

These Bank Stocks are the Best Housing Play: Goldman Sachs

NEW YORK ( TheStreet) -- The recovery in housing is yet to be fully priced into bank stocks, making them the last inexpensive way to play the housing recovery, Goldman Sachs analysts said in a report Tuesday.

Banks have gained significantly year to date but have still underperformed other sectors with leverage to the housing market- such as homebuilders.

"While homebuilders remain the pure-play way of gaining exposure to this theme, those stocks are up 61% since 2011 (including 92% in 2012) and we believe banks stocks remain one of the few "inexpensive" ways to gain exposure to a recovery in the housing market," according to Goldman.

Not all banks are equal when it comes to benefiting from the housing recovery, however. The analysts' estimates for earnings upside for banks vary from 4% to 23%. Exposure to the boom-bust states such as the southeast and those with a significant presence in mortgage banking are likely to be the best picks.

Overall, the analysts see a 12% upside to 2013 earnings estimates for the sector, with Regions Financial (RF - Get Report), Citigroup (C - Get Report), Wells Fargo (WFC - Get Report) and EverBank Financial (EVER) having the most upside based on current valuations.

Regions Financial remains "one of the most levered banks to an improvement in housing" with 35% of its home loans in Florida, where home prices are up 7% year to date, the analysts note. Goldman has a $9 price target for the stock, implying a 22% upside.

The analysts also believe Citigroup has more upside from the housing recovery than the market anticipates. Although Citi's exposure to residential mortgages is now low, lower credit losses in its non-core Citi Holdings portfolio could be a lever for the bank. "Better home prices should allow for the quicker rundown of Citi Holdings to reduce its drag on P&L. Additionally, C would be the most inexpensive name in our coverage universe in a housing recovery scenario, trading at 5.9x," the analyst wrote.

Wells Fargo's strength in mortgage banking is well known, but "Our analysis highlights an underappreciated earnings lever for WFC given an improvement in the housing market: increased revenue from better residential loan growth. 41% of WFC's loan book is tied to residential real estate, and improving housing prices could signal a return to growth here," said the analysts, who have a price target of $41 on the stock.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.56 -1.56%
C $46.28 -0.96%
RF $9.38 -0.42%
STI $41.74 -0.78%
WFC $49.98 -0.85%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs