Bank investors have already enjoyed their post-election euphoria: By March the market capitalization of the S&P 500 Financial Index reached a record $3.1 trillion. Since then, high share prices have scared some investors away. But Christopher Davis, chairman of Davis Funds, notes that bank stocks still trade at a discount greater than 20% to the S&P 500. Here are three that the pros like.
J.P. Morgan Chase (jpm)
J.P. Morgan’s stock has nearly tripled in the past five years, leading some investors to fear a slowdown. But Davis thinks it’s one of several banks that may soon increase their dividends, even if President Trump’s proposed tax and regulatory cuts aren’t enacted. The bank currently pays about 30% of its earnings as dividends. A significant bump in that payout could please shareholders, even if the stock price lags.
Donald Trump’s antitrade rhetoric sent emerging-market stocks plummeting after his election—and left some investors wary of Citigroup, which earns about 36% of its revenue in such markets, says Conor Muldoon, a portfolio manager at Causeway Capital. With those markets rebounding (see our Midyear Investor’s Guide) and Trump moderating his stances, Citigroup shares look more attractive: At 12 times trailing earnings, they’re cheap relative to other banks.
South State Bank (ssb)
Regional lenders don’t get the investor attention that big banks do, but some deserve a second look. Susan Schmidt, senior portfolio manager at Westwood, says that South State, which focuses mostly on the Carolinas, could get a lift from “reshoring” of manufacturing under the Trump administration. Even without such help, South State has shown a knack for attracting business; its deposits grew 74%, to $8.9 billion, between 2012 and 2016.
This article is part of Fortune’s 2017 Midyear Investor’s Guide. For our picks in other sectors, click on the links below:
A version of this article appears in the June 1, 2017 issue of Fortune as part of our feature titled "State Street's Gender Show Down."