Bank stocks could be in for a rally as the market prepares for a possible June interest-rate hike and oil prices improve.
The financial sector has been beaten down in 2016 as market volatility took a bite out of investment banking and capital markets activities, while low oil prices have hurt those banks with exposure to energy loans.
The KBW Bank Index is down 3.7% this year, but on Wednesday, the index jumped nearly 2%. (The index was down about 0.9% at last check.)
TheStreet's Jim Cramer said Wednesday's rally in the financial markets could be pushed higher if "Janet Yellen says the right thing" as the market prepares for a potential June interest rate hike. Minutes from the Federal Reserve monetary policy committee's most recent meeting, chaired by Yellen, showed members actively considering an increase next month, a move the market hadn't expected until later in the year.
"These are how real rallies start, on nothing," Cramer said Wednesday. "And then we find out why."
So which bank stocks are outliers this year? Using a Bloomberg equity screen of U.S.-domiciled banks with market caps above $5 billion, here are the five best-performing bank stocks this year by total return. (Year-to-date total return are as of market close on May 25.)
Regions got a stock boost last month from an upgrade by FBR to outperform from market perform. The FBR analysts were optimistic after Regions reported strong first-quarter results of 20 cents a share on revenue of $1.37 billion, beating expectations on the top and bottom line.
Even though elevated loan provisions related to bad loans will likely remain a headwind to growth through fiscal 2016, "We believe that Regions Financial shares are too attractively valued to pass up, especially as the company continues to grow revenue and improve its operating leverage," the analysts said.
Approximately 3.9% of Region's loans were energy-related loans at year end.
The stock was downgraded by Keefe Bruyette & Woods to underperform from market perform on May 16.
Analysts, according to Thomson Reuters, are projecting the Birmingham, Ala.-based regional banking company to report annual EPS of 83 cents a share on revenue of $5.52 billion. The targets are up 8% and 3% from the year prior, respectively.
Regions has a dividend yield of 2.8%.
SunTrust reported better-than-expected top and bottom line quarterly results for the March-ending period by controlling costs and increasing loans, despite its investment banking slump and increased losses related to the energy industry.
Approximately 2.2% of SunTrust's loans were energy-related loans at year end.
Analysts, according to Thomson Reuters, are projecting the Atlanta-based banking company to report annual EPS of $3.48 a share on revenue of $8.51 billion. The targets are down 3% and up 4% from the year prior, respectively.
SunTrust has a dividend yield of 2.3%.
Zions missed first-quarter earnings estimates when it reported per-share earnings of 38 cents, down 11% from the year-earlier period. The mid-cap bank was upgraded by Raymond James Financial on May 9 to strong buy from market perform.
Analysts, according to Thomson Reuters, are projecting the Salt Lake City-based banking company to report annual EPS of $1.76 a share on revenue of $2.37 billion. The targets are up 47% and 13% from the year prior, respectively.
Zion has a dividend yield of 0.9%.
Analysts, according to Thomson Reuters, are projecting the San Francisco-based private banking company to report annual EPS of $3.74 a share on revenue of $2.3 billion. The targets are both up 18% from the year prior.
The bank has left most other regional and large banks in the dust this year and one reason could be that it has little to do with some of the businesses that have been hurting banks from low oil prices and market volatility.
"We would note that we do not engage in investment banking or capital markets trading, we have no direct exposure to energy, and we have no international lending or operations," First Republic's Chairman and CEO James H. Herbert said on the company's earnings call last month, according to Bloomberg.
First Republic has a dividend yield of 0.9%.
Investors have become disenchanted with Comerica's performance as the Dallas-based bank has been saddled with bad energy loans. The company said they hired Boston Consulting Group to engage in a strategic review of the company, however earlier this month, Comerica's chief financial officer resigned, taking a job as the head of finance at medical device maker Medtronic (MDT - Get Report) .
Analysts have been increasingly bullish on Comerica on the possibility of a takeout. Since its quarterly earnings report on April 19, the stock has received three upgrades. Bank of America/Merrill Lynch raised its rating to neutral from underperform. Raymond James upgraded the stock to outperform from market perform, while Goldman Sachs upgraded the stock to neutral from sell. That said, Wells Fargo took its rating down to underperform from market perform on May 13.
Analysts, according to Thomson Reuters, are projecting Comerica to report annual EPS of $2.50 a share on revenue of $2.9 billion. The targets are down 14% and up 5% from the year prior, respectively.
Comerica has a dividend yield of 1.95%.