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Pro Analysis

JPMorgan: Keep buying bank stocks because they are still cheap relative to market

The Citibank Corporate Office & Headquarters is viewed in midtown Manhattan.
Kevin Winter | Getty Images
The Citibank Corporate Office & Headquarters is viewed in midtown Manhattan.

JPMorgan told investors to buy financial stocks because of their low valuations and the likelihood of better-than-expected earnings in the coming year.

"Large bank stocks have been weak recently after seeing outperformance in the months following the elections. Concerns have arisen as to whether any meaningful policy changes will arise," analyst Vivek Juneja wrote in a report to clients Monday. "Large bank stocks are now attractively valued relative to the market."

Juneja cited how the sector's price-earnings multiple is now at the lower end of the historical range relative to the S&P 500 during economic recoveries. Banks are trading at 10.8 times 2018 estimated earnings, which is 64 percent of the market's P/E versus the 59 to 75 percent range in the past 25 years during rate hike cycles, according to the analyst.

"Longer term, we continue to like the sector … there is nothing in our EPS estimates for changes from the administration and we have one more rate hike in '17, hence these would provide EPS upside," he wrote.

Here are four financial stocks that JPMorgan recommended and their price targets.