Analyst Identifies Bank Stocks That Could Benefit From Rate Cuts

Options traders are upbeat on GS and C stocks

by Josh Selway

Published on Jul 26, 2019 at 10:13 AM
Updated on Jun 24, 2020 at 10:16 AM

Brokerage firm KBW this morning released a note in which it said bank stocks Goldman Sachs Group Inc (NYSE:GS), Citigroup Inc (NYSE:C), and Bank of America Corp (NYSE:BAC) could all be beneficiaries of the Fed lowering interest rates, upgrading each stock to "outperform." As such, let's take this opportunity to check in on the shares of GS, C, and BAC.

For GS, the analysts hiked their price target to $260 from $225, well above today's current perch of $221.20, and near 2018's all-time highs. The note suggested easing from the Fed could benefit Goldman's trading business. This comes after the company earlier this month reported strong earnings, helping the stock trade at its highest point since November.

While the majority of analysts still have "hold" or worse recommendations on Goldman Sachs shares, some options traders have been showing bullish intentions. The 10-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 2.57, which ranks in the bullish 78th annual percentile.

Citigroup stock is trading 0.8% higher at $71.97, with KBW moving its price target up to $86 from $74. The shares are nearing their 52-week high of $75.24, and options traders at the ISE, CBOE, and PHLX have been betting on more upside in the past two weeks, with call buying more than doubling put buying. Analysts are also upbeat, as all 14 in coverage recommend buying C shares.

BAC's price target was lifted to $36 from $32, citing potentially lower credit costs if the economic expansion continues. The stock is slightly higher this morning in response, last seen at $30.55, also benefiting from news that Berkshire Hathaway increased its position in the company. This puts the shares' year-to-date lead at 23%, and has them knocking on the door of their 52-week high from this time last year.

As for options traders, they're far less call heavy than normal at the moment. This is according to Bank of America's Schaeffer's put/call open interest ratio (SOIR) of 0.98, which ranks in the top annual percentile.


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