InvestingPro Exclusive: 4 hefty bank plays as the Fed pauses rate hikes

Here is your VIP list of Pro Picks for the week, offered exclusively to InvestingPro subscribers: a hand-picked selection of S&P 500 stocks that InvestingPro awarded a high financial health score of at least 2.75 out of 5.00.

This week, we've put together a list of 2.75+ scored bank stocks.

Historically, stocks that rated above 2.75 have had a high potential to outperform the S&P 500. For a deeper dive into how we make our Pro Picks, read more here.

PNC Financial

PNC Financial (NYSE: PNC ), which was caught in the larger regional-bank pullback earlier this year, rocks a solid InvestingPro health score of 3.02 thanks in large part to a stalwart bottom line: The bank has a strong track record of free cash flow exceeding net income, indicating excellent earnings quality, and its revenue trend is better than virtually all its peers.

On top of all that, it has been aggressively buying back shares and its dividend - which it has paid out for 52 years in a row - offers investors an enticing yield of 4.7%.

After the hit it took earlier this year, Citi upgraded the stock to Buy and called its management team “one of the best” among large regional banks, citing the bank’s “clean asset quality” and “strong deposit base.” The bank has staged a partial recovery since then, but shares are still down nearly 20% year to date and InvestingPro’s fair value calculations still put upside at 28% from current levels.

Goldman Sachs (NYSE: GS ), of course, needs no introduction. The investment bank has a superb 2.92 InvestingPro financial health score, supported in particular by brawny earnings, a free cash flow yield that beats out nearly all its peers, and a wonderful operating cash flow margin. It also has outstanding price momentum behind it: The stock’s four-year total price return is close to 95%.

This is also a solid dividend stock, with a 3% payout and 11 straight years of dividend hikes. UBS and CFRA both recently stamped the stock with buy ratings, and analysts overall give shares plenty of upside - while InvestingPro fair value puts upside over 50% above current levels. Shares have ticked a little under 2% for the year.

Huntington Bancshares

Huntington Bancshares (NASDAQ: HBAN ) is another highly rated bank whose shares fell off a cliff earlier this year along with many other regional banks. But it also has a fantastic InvestingPro financial health score, at 3.12, that’s powered by relentlessly rising earnings per share, high average return on invested capital growth over the past two years, and a free cash flow yield of 20% that flattens the vast majority of peers.

Most notably, the bank pays an incredible 5.8% dividend and has maintained its payout every year for more than a half-century. Huntington shares, which are down more than 20% for the year, are still quite cheap at a forward price-to-earnings ratio of 7.5x - and InvestingPro’s fair value calculations say the stock could rocket over 20% from here.

Hartford Financial

Joining its regional-bank brethren is Hartford Financial (NYSE: HIG ), which also took a hit earlier this year. The bank’s free cash flow outpaces net income, meaning high earnings quality - and, in that vein, its ratio of cash flow to total debt is in the 97th percentile for the space while its liquid assets comfortably surpass its short-term obligations. Its revenue numbers overtake those of nearly all of its peers, as well, and has an impressive three-year total return on its stock price. And it is keen on returning cash to shareholders: It has been actively buying back shares and pays out a nice 2.4% dividend that it has increased for the past decade running. InvestingPro’s fair value estimate suggests staggering 38% upside, as affirmed by a recent upgrade to buy at Goldman Sachs. Shares have dipped just over 5% for the year.

Data as of June 15, 2023.