EEven though interest rates have jumped this year, most financial stocks have struggled as many banks and financial institutions have sounded the alarm over the bleak economic outlook. JPMorgan Chase CEO Jamie Dimon even predicts an economic “hurricane” caused by rising inflation, rising Fed interest rates and the war in Ukraine.
The Fed is beginning to unwind its balance sheet, a process known as quantitative tightening, as it embarks on the journey of raising rates. Dimon said the market wasn’t prepared for this, and it’s something people “will be writing in the history books for 50 years.” The tone marked a quick departure from Dimon’s sentiment at an analyst meeting late last month, where the bank’s CEO sounded a bit more bullish on the economic outlook.
Although financial stocks were not necessarily the best performers of the year, they held up relatively well. Zacks Finance’s sector is ranked in the top 38% of the top 15 sectors and has outperformed the S&P 500 year-to-date. Moreover, the sector is relatively undervalued as can be seen below:
Image source: Zacks Investment Research
Within this sector, the Zacks Banks – Southwest industry group is currently ranked in the top 19% out of more than 250 industries. Because it is ranked in the top half of all industries ranked by Zacks, we expect this group to outperform over the next 3-6 months. The industry group has performed admirably this year (+0.17%), a big win over the S&P’s -13.6% return. Like the sector, this industry is also undervalued:
Image source: Zacks Investment Research
Quantitative research studies have shown that about half of a stock’s price appreciation can be attributed to its industry group. By focusing on the stocks of the major industries, we can significantly improve our chances of success. Let’s take a look at a top title contained in this top industry and sector combination.
BancFirst Corp. (BANF)
BancFirst Corporation is a bank holding company that provides a wide range of commercial banking services to small and medium-sized businesses as well as retail customers. BANF offers checking and savings accounts, sweep accounts, IRAs and CDs. The company also provides lending services to a host of different industries such as real estate, energy and insurance. BANF operates through 108 banking locations in Oklahoma and 3 locations in Texas. BancFirst Corporation was incorporated in 1984 and is headquartered in Oklahoma City, OK.
BANF has exceeded earnings estimates in three of the past four quarters. The holding company recently reported first-quarter EPS of $1.08 in April, a surprise 16.13% from the consensus estimate of $0.93. BANF delivered a surprise 12.98% over the past four quarters in average earnings, contributing to the stock’s 42% return over the past year.
BancFirst Corporation price, consensus and EPS surprise
Analysts agreed in terms of earnings estimates and raised them across the board. The quarter that really stands out this year is the third quarter, where EPS estimates jumped 22.22% in the past 60 days. The Zacks consensus estimate is now $1.21, reflecting growth of 4.31% from the same quarter last year.
If you’re looking for a financial stock that outperforms the market, look no further.
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