3 Bank Stocks Blasted By Berenberg

GS, JPM, and WFC are the brokerage firm's preferred shorts

by Karee Venema

Published on Feb 23, 2018 at 9:58 AM
Updated on Feb 23, 2018 at 10:03 AM

Berenberg weighed in on banks today, saying several large-cap financial shares are overvalued. The brokerage firm specifically called out Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC) as the best stocks to short, considering "structural headwinds far outweigh" strong first-quarter revenue numbers, and that "downgrades will recommence as the rate cycle matures." Nevertheless, all three stocks saw their price targets hiked at Berenberg, on positive near-term expectations from rate hikes.

Goldman Sachs Bulls Buy Front-Month Calls

Goldman Sachs stock had its price target lifted to $200 from $190 -- though this remains well below last night's close at $261.43, as well as the average 12-month price target of $268.71. Out of the gate, GS shares are up 1% to trade at $264, and are on track to snap their four-day losing streak.

Options traders are optimistic about the bank stock's short-term trajectory. The March 280 and 300 calls are home to peak open interest of 7,711 and 5,396 contracts, respectively. Data from the major options exchanges confirms mostly buy-to-open activity at each front-month strike, suggesting speculators are betting on a breakout to record highs by expiration at the close on Friday, March 16. The highest GS stock has ever traded is $273.75, hit on Jan. 29.

JPMorgan Chase Stock Overdue for Upgrades

Berenberg raised its price target for JPMorgan Chase stock to by $20 to $85. The last time JPM shares traded near $85 was in early June, and since then, they've shot more than 36% higher to $115.69, and tagged an all-time peak of $117.44 on Wednesday.

Most analysts remain skeptical of the security, though. While 10 of 20 analysts maintain a lukewarm "hold" recommendation on JPM stock, the consensus 12-month price target of $120.07 stands at a slim 4.4% premium to current trading levels. Should the shares continue to move higher, a round of bullish brokerage notes could draw more buyers to the table.

Wells Fargo Options Traders Eye Record Highs

Wells Fargo stock's price target was raised to $45 from $35 at Berenberg, though the brokerage firm said it liked this bank the least and Citigroup (C) the most. Regardless, WFC shares are trading up 0.4% at $59.06, extending a mid-February bounce off their 200-day moving average. However, this recent rally has been contained by the round $60 mark, which coincides with an early February bear gap -- brought on by stiff regulatory restrictions following the bank's fake account scandal.

This near-term barrier hasn't stopped options traders from betting bullishly on the stock. WFC's weekly 3/9 66.50-strike call has seen one of the biggest increases in open interest over the past two weeks, with more than 10,047 contracts initiated. Trade-Alert indicates a number of these calls were bought to open on Monday, as traders eye a move to uncharted territory in the next two weeks. Wells Fargo stock hit a record high of $66.31 on Jan. 29.

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