3 Financial Institution Stocks to Buy

 |  Includes: BLK, JPM, PNC
by: Benjamin Goldman

Financial institution stocks are normally good stocks to have in a portfolio. They all boast pretty good dividend yields and their top managers have very good knowledge of the market and what they need to do to adjust in tough financial times. Financial institution stocks are also very risky because they are highly levered and bearish markets can lead to bank failures. BlackRock (NYSE:BLK), JP Morgan Chase (NYSE:JPM), and PNC are three financial institutions that I believe are good buys in today’s market because they all boast good dividend yields, trade at low P/E ratios, and have low betas compared to the rest of the market, so an economic crisis is much less likely to send their stocks plummeting.

BlackRock is a top investment management firm that generates revenue off of client business. It has assets under management of $3.66 trillion. It's among the best at what it does and is experiencing very strong growth, which is rare in the financial sector. Analysts expect BlackRock’s earnings per share to increase 16.5 percent to $12.74 in 2011 and another 14.4 percent to $14.58 in 2012, with revenue estimated to grow at an annualized rate of 9.8 percent. It has a good dividend yield for a growth company at 3.41 percent. It currently trades at a P/E ratio of 13.4, which is a low multiple for a company that is growing and paying dividends.

JP Morgan Chase is one of the four largest banks and one of the best banks in the industry. It has large market shares in both commercial banking under the Chase name and investment banking under the JP Morgan name. JPM is trading at a very low price right now and the stock is much less volatile than competing banks' with a beta of 1.13. It has a dividend yield of 2.73 percent and trades at a P/E ratio of 7.81 even though it has very little chance of going bankrupt in the wake of another financial crisis because it historically makes safe investments. Analysts expect a 26.6 percent increase in EPS in 2011 and a 12.4 percent increase in 2012. Out of the Big Four banks, it's the safest investment and has the most growth potential.

PNC Financial Services is another good bank that makes sound investments, has low leverage, and has a low beta for a bank at 1.22. Its commercial banking practice operates in 15 states and it's the second biggest syndicator of middle market loan transactions in the United States. It has a P/E ratio of 7.62 and a dividend yield of 2.96 percent, and is probably the safest bank to invest in right now. PNC is a very undervalued stock and I think its consistent performance will make it more valued by investors in the future.

All three of these financial institution stocks are currently good investments because they have good business models and trade at low prices for the earnings that they are expected to achieve. I typically stay away from financial institution stocks because they are too volatile and overly leveraged, but I am a big fan of BlackRock, JP Morgan, and PNC, and I expect to see their stock prices rise over the next year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.