Big Bank Earnings Kick Off Tuesday: Which Bank Stock Is the Best Buy?

Earnings season truly begins this week, and the banks go first. JPMorgan, Citigroup, Wells Fargo, Goldman Sachs and Bank of America all report before the opening bell on Tuesday, with Morgan Stanley following on Wednesday. These results matter well beyond the sector: banks lend to households and businesses, so their numbers are an early read on the health of the whole economy. Here is what to watch and which bank looks most attractive.

Why Banks Look Cheap Right Now

Start with the most interesting fact. Bank shares trade at roughly 12 times earnings, while the S&P 500 as a whole trades at about 22 times. That is a big discount for an industry expected to grow profits around 10% this year.

Why so cheap? Investors worry that a flatter yield curve will squeeze lending profits, and that a slowdown could hurt loan quality. But the picture going into these results looks solid: loan growth is accelerating, trading revenue is running 10-15% higher, and credit quality has held up. In our view, that combination, decent growth at a low price, is what makes this week genuinely interesting for investors.

The One Number That Matters

Forget the headline profit figures for a moment. The number to watch is net interest margin, or NIM.

That may sound technical, but it is simple: NIM is the gap between what a bank earns lending money out and what it pays savers for deposits. It is the core of how banks make money. Analysts expect it to hold around 2.7% to 2.9%. If margins hold, profits are safe. If they shrink, even a strong headline result will not save the shares.

There is a twist this week, too. US June inflation data lands the same morning the first banks report. Higher inflation could push interest rates up, which usually helps bank margins but also raises the risk of a slowdown that would hurt lending. Expect a volatile day.

Which Bank Is the Best Buy?

Here is how we see the three main choices.

JPMorgan is the quality benchmark. It is the best-run bank in America, earning a return on equity of around 23%, exceptional for the industry. The catch is that everyone knows it: it trades at a premium to peers, so you pay up for that safety.

Goldman Sachs is the boom-or-bust pick. It lives off dealmaking and trading, and profits are expected to jump more than 30%. If the deals keep flowing, it wins big. But it is the most volatile, with traders expecting the largest share-price swing of the group.

Citigroup is the value play. It trades at roughly the value of its own assets, far cheaper than rivals, meaning the market has priced in very little success. Analysts believe it has the most upside if CEO Jane Fraser’s turnaround is real. That is the key word: if.

The Investor’s Takeaway

So which would we choose? Our view is that the answer depends on what you want. For safety and quality, JPMorgan remains the benchmark, though you pay for it. For value-hunters willing to take a risk, Citigroup offers the biggest potential reward, but it must prove its turnaround is working, and this week’s numbers are a real test.

Our take: as a group, banks look reasonably priced compared with an expensive market, and the fundamentals going in are healthy. But watch margins, not headlines. If net interest margins hold up on Tuesday, the whole sector could re-rate higher. If they slip, the cheap valuation will suddenly look justified.