Best Buys in Banking

08/26/2013 8:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

Fueled by healthy earnings momentum, the financial sector has been a strong performer in 2013; for investors wondering whether it is time to take profits and exit the sector, our answer is simple: “No”, asserts Richard Moroney of Upside Stocks.

To be sure, investors should be increasingly selective, as reasonably valued growers have become harder to find.

The financials featured below are positioned for solid earnings growth and boast attractive year-ahead potential. Both stocks earn our highest Best Buys ranking.

BofI (BOFI) conducts most of its business over the internet, avoiding many of the costs that typically weigh on profits at other banks. As a result, its profit margins dwarf industry norms.

The company's web-based structure also makes operations highly scalable. BofI's balances for checking accounts have jumped by 182% since the end of 2011, with younger customers driving growth.

BofI, one of just a handful of US banks to achieve consistent growth in net interest margins over the past year, says it has contained expenses by shifting its deposit base toward lower cost checking, savings, and money-market accounts.

The consensus expects BofI to increase per-share earnings 13% in the next 12 months, versus the median of 8% for S&P 1500 financials. BOFI is a Best Buy.

Eagle Bancorp (EGBN) is a standout among regional banks. It posted per-share earnings of $0.44, up 33% and $0.02 above Wall Street expectations.

Total revenue increased a solid 18%, with noninterest income up 59% and net interest income up 12%.

The net interest margin was 4.27%—above March-quarter levels, but below the prior-year figure of 4.39%. Tangible book value increased 18% to $12 per share.

Consensus estimates project per-share profits will jump 24% this year, on top of a 41% increase in 2012. Eagle Bancorp, which serves the Washington DC metropolitan area, is a Best Buy.

Subscribe to Upside Stocks here…

More from MoneyShow.com:

Peruvian Profits at Creditcorp

Financial Favorites for Value and Yield

Buyback Bets in Banking

Related Articles on STOCKS