3 Banking Stocks to Watch in 2023

The world of banking may appear confusing at first glance, and indeed, it is multifaceted in various aspects. Yet, the fundamental principles that underpin the banking industry and delineate how these enterprises generate their revenue are straightforward.

Keeping this in mind, let’s delve into an overview of the diverse types of banks, key metrics essential for investors, and three exceptional beginner-friendly banking stocks that are definitely attention-deserving.

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3 Banking Business Categories

Commercial Banks

Commercial banks serve both consumers and businesses by offering an array of services, including checking and savings accounts, auto loans, mortgages, and certificates of deposit. And although we’re here to discuss banking stocks, it is crucial to understand the world of banking first.

Their primary revenue stream derives from borrowing funds at a comparatively low interest rate and then lending these funds to customers at a higher rate. While interest income forms the core of their earnings, commercial banks also accrue substantial revenue from loan origination fees, ATM surcharges, and account maintenance fees.

Notably, commercial banking operates cyclically, with economic downturns and pandemics leading to increased unemployment and financial challenges for consumers and businesses alike.

Investment Banks

Specializing in providing investment services to institutional clients and high-net-worth individuals, investment banks earn fees through activities such as issuing debt securities, offering guidance on mergers and acquisitions, and facilitating initial public offerings (IPOs) for other companies.

Additionally, they generate revenue from trading in equities, fixed-income securities, currencies, and commodities. Investment banks often incorporate wealth management services and maintain substantial investment portfolios.

Notably, the resilience of investment banking becomes evident during economic downturns, as it tends to fare better amid market volatility.

Universal Banks

Universal banks integrate both commercial and investment banking operations, a configuration observed in most major U.S. banks. While commercial banks predominantly derive profits from interest income and investment banks primarily rely on fee income, universal banks benefit from a harmonious combination of the two.

It is essential to recognize that these definitions offer a simplified perspective, as banks employ various strategies to generate revenue. For instance, many banks provide safe deposit boxes for lease, and some establish revenue streams through collaborations with third-party entities.

Nevertheless, at their core, these delineations encapsulate the primary avenues through which banks, including the captivating realm of banking stocks, generate their revenue.

3 Banking Stocks to Consider in 2023

The landscape of banking stocks on major U.S. exchanges is vast, encompassing a multitude of institutions that vary in size, geographical reach, and strategic focus.

Amidst the plethora of choices available to investors, let’s shine a spotlight on three banking stocks suitable for beginners, each holding the potential to yield stellar returns over the coming years:

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1. Banking Stock Overview

Bank of America (NYSE: BAC)

Ticker: BAC

Bank of America stands out as a compelling success story in the post-financial crisis era, undergoing a remarkable turnaround. In recent years, the bank has exhibited robust growth in its loan portfolio, surpassing its peers.

Noteworthy improvements in operational efficiency, coupled with significant advancements in online and mobile technology, underscore Bank of America’s commitment to staying ahead in the ever-evolving banking landscape.

The bank’s asset quality is commendable, and its strategic focus on a substantial deposit base, which largely consists of interest-free deposits, positions it favorably to capitalize on the current Federal Reserve Board rate hike cycle.

While acknowledging that Bank of America is not entirely immune to economic challenges, particularly potential spikes in loan delinquencies, it remains resilient. The bank’s robust retail banking operations, combined with the strength of its investment bank poised to benefit from market volatility, positions it as a stalwart capable of weathering most financial storms.

As investors navigate the dynamic landscape of banking stocks, Bank of America emerges as a compelling option, offering a blend of growth potential and resilience in the face of economic uncertainties. Keep an eye on this banking stock as it continues to chart its course in the unfolding market scenarios.

2. JPMorgan Chase (NYSE: JPM)

Ticker: JPM

JPMorgan Chase stands as the unequivocal leader among the major U.S. banks in terms of profitability, securing its position as the largest bank by market capitalization in the U.S. The bank boasts a comprehensive presence, engaging in virtually every facet of both commercial and investment banking.

Notably, JPMorgan Chase has excelled in expanding its credit card and auto loan businesses in recent years. Furthermore, the bank has demonstrated a keen embrace of new technologies, making strategic investments in financial technology (fintech) companies.

It’s essential to recognize that while JPMorgan Chase’s consumer banking arm, Chase, ranks among the largest in the U.S., the bank distinguishes itself with the most extensive investment banking operation among the companies under discussion.

This characteristic proves advantageous, especially in turbulent economic climates. The bank’s emphasis on activities such as trading positions it favorably, as demonstrated during both the financial crisis and the onset of the COVID-19 pandemic.

As investors delve into the realm of banking stocks, JPMorgan Chase emerges as a stalwart contender, combining substantial profitability with strategic diversification across commercial and investment banking.

Keep a close watch on this banking stock as it continues to leverage its market leadership and adaptability to navigate the dynamic landscape of 2023.

3. U.S. Bancorp (NYSE: USB)

Ticker: USB

U.S. Bancorp takes center stage as a quintessential commercial bank, with revenue derived predominantly from loans and various consumer banking products.

Renowned as U.S. Bank across most of America, U.S. Bancorp consistently delivers some of the sector’s most impressive profitability and efficiency metrics, making it a standout dividend stock for investors.

What sets U.S. Bancorp apart is its unwavering focus on consumer banking, steering clear of the more volatile realm of investment banking. This deliberate choice results in a level of predictability and consistency in profitability and revenue that distinguishes it from its counterparts on this list.

While its reliance on interest income is evident, there’s confidence in U.S. Bancorp’s ability to weather challenging times unscathed. It not only remained profitable throughout the financial crisis but also boasts a commendable track record of astute risk management.

As investors seek stability and a reliable income stream within banking stocks, U.S. Bancorp shines as a prudent choice. Its steadfast commitment to consumer banking, coupled with a history of sound risk practices, positions it as a resilient player in the ever-evolving financial landscape of 2023. 

Keep an open eye on this banking stock for potential opportunities and continued steady performance.

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