5 Bank Stocks to Buy for the Covid-19 Vaccine Recovery

Bank stocks popped big this week on the back of favorable Covid-19 vaccine news from Pfizer (NYSE:PFE). The general idea is that widespread distribution of a highly effective vaccine will spark a rapid economic recovery in 2021, and by extension, breathe life back into depressed bank stocks.

Over the past five days, the SPDR S&P Bank ETF (NYSEARCA:KBE) has rallied about 10%.

That’s a big move for the normally dormant and unexciting bank sector.

The analyst team over at Wells Fargo thinks that their is more to come. Much more.

“We advise getting aggressive on Banks despite Monday’s… run-up. In Banks we have historic valuations, significant scope for upside potential, an uncrowded opportunity, and catalysts in the form of fundamentally-driven reflation and near-term Covid solution(s),” analysts at Wells Fargo said in a recent research note.

I couldn’t agree more.

Bank stocks are dirt cheap today because the U.S. economy is in shambles. But that broken economy is recovering, with the recovery set to accelerate in 2021 thanks to an effective vaccine. As the economic recovery accelerates, dirt-cheap bank stocks will rally in a big way.

With that in mind, here are my five favorite bank stocks to buy to play the economic recovery:

• JPMorgan (NYSE:JPM)
• Wells Fargo (NYSE:WFC)
• Citigroup (NYSE:C)
• Goldman Sachs (NYSE:GS)
• Bank of America (NYSE:BAC)

Bank Stocks to Buy: JPMorgan (JPM)

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In the big picture, JPMorgan is the best bank on Wall Street, and JPM stock is one of the best bank stocks buy for the next 12-plus months.

Over the past few years, JPMorgan has heavily leaned into veteran leadership, unique technology partnerships and relentless fin-tech innovation to consistently drive some of the best numbers in the industry. Revenues have been ripping higher. Return on equity has been sky high. Profits have been soaring.

Head to toe, this is the highest quality bank on Wall Street. It has been for some time, and it projects to remain so for the foreseeable future.

To be sure, the valuation on JPM stock reflects this reality. Most big bank stocks trade below tangible book value today. JPM stock trades at around 1.8X tangible book value — so it is more richly valued than peers.

But that’s always been true. Better performance has led to a bigger valuation.

More importantly, relative to where the stock’s tangible book multiple was pre-Covid (up around 2.4X), JPM stock is cheap today, meaning that there is room for this stock to run higher as the U.S. economic recovery takes hold in 2021.

Wells Fargo (WFC)

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Wells Fargo has been the eyesore of the banking industry for several years.

That hasn’t changed in 2020. Amid a challenging backdrop, Wells Fargo has reported a string of quarters this year that comprised big revenue declines, significant profit margin compression, record low net interest margins, significant builds in reserves and huge net losses.

It hasn’t been pretty.

But, Wells Fargo is still one of a select few major consumer banks in the U.S. That reality won’t change anytime soon. If macro U.S. economic and banking sector fundamentals improve over the next 6 to 12 months thanks to a Covid-19 vaccine being widely distributed, Wells Fargo’s numbers and growth trends will only get better.

Those improving growth trends will converge on what is a hugely discounted valuation on WFC stock today. The stock is trading at around 80% of its tangible book value, making it one of the cheapest bank stocks in the market.

This convergence will ultimately spark huge gains in WFC stock over the next 6 or so months.

Bank Stocks: Citigroup (C)

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Next to Wells Fargo, Citigroup is another one of the best bank stocks to buy because of potential valuation upside as the U.S. economic outlook improves.

Citigroup stock is currently trading at around 67% tangible book…