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Today, we will focus on the finance sector, which is known to benefit from the rising interest rate environment. Bank of America (NYSE:BAC) and Charles Schwab (NYSE:SCHW) are among the most bought finance stocks by hedge fund managers in the previous quarter.
Let’s take a closer look at these two stocks.
Bank of America
Based in Charlotte, Bank of America provides a wide variety of banking and nonbank financial services. BAC stock has gained 2.1% over the past six months.
Bank stocks prosper in the rising rate environment as interest income forms a major part of their revenues. Well, this is evident in BofA’s recent earnings report. In the first nine months of 2023, net interest income rose about 20% year-over-year.
Going forward, the top line of this Wall Street major bank is likely to continue improving with support from decent loan demand and the Fed’s hawkish stance. Nevertheless, the risk of piling up bad debt with fears of a recession looming remains a key concern.
Furthermore, the stock seems to be undervalued when compared with its historical performance. Its current P/E ratio of 10.3x reflects a 19.2% discount from its five-year average of 12.71x.
TipRanks’ Hedge Fund Trading Activity tool shows that hedge funds bought 14.6 million BAC stock last quarter. About 20 hedge fund managers added the stock to their portfolios.
Is BAC a Buy Stock?
Currently, BofA has a Moderate Buy consensus rating based on seven Buy and five Hold recommendations. The average price target of $39.82 implies 22.41% upside potential.
Charles Schwab
The company provides services ranging from banking and securities brokerage to wealth and asset management, custody, and financial advisory services. Over the past six months, shares of the company have gained 28.9%.
Charles Schwab’s topline is benefitting from growing assets under management and rising interest rates. Further, the company’s efforts to attract clients by introducing new, innovative products are encouraging.
It is worth mentioning that Charles Schwab raised its quarterly dividend twice in 2022 and has a payout ratio of 22.7% at present. These impressive capital deployment activities reflect the management’s confidence in the company’s financial position and long-term prospects.
According to our tool, hedge funds bought 7.3 million shares of SCHW last quarter, with 13 hedge fund managers adding the stock to their portfolios.
Is SCHW a Good Stock to Buy?
Analysts are cautiously optimistic about Charles Schwab. It has received eight Buy and three Hold recommendations for a Moderate Buy rating consensus. The average price target of $93.56 implies 13.8% upside potential.
Bottom Line
In its latest meeting, the Federal Reserve revealed plans to further increase the benchmark interest rate in 2023. This is expected to boost the revenue of these two companies. Moreover, positive signals from hedge funds and analysts’ optimism indicate that these companies have the potential to generate strong returns.
Find out which stock the biggest hedge fund managers are buying right now.
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