The investment bank industry has flourished in 2024 following a rebound in corporate debt and equity issuances and deal-making activities, which is expected to increase investment banking fees. This momentum is expected to continue in 2025.
With sustained weakness in underwriting, IPOs and deal-making activities since 2022 due to geopolitical tensions, global supply-chain disruptions, and aggressive monetary policy tightening worldwide to control inflation and potential recession risks, green shoots in advisory and underwriting businesses are visible with the deal pipeline looking healthy.
We recommend buying into five investment bank stocks with a favorable Zacks Rank to enrich your portfolio in 2025. These are: The Goldman Sachs Group Inc. GS, Morgan Stanley MS, Bank of America Corp. BAC, Wells Fargo & Co. WFC and Raymond James Financial Inc. RJF.
Positive Catalysts
With the macroeconomic environment steadying due to the interest rate-cutting cycle globally and growing optimism for a soft landing of the U.S. economy, underwriting and M&A activities are on path to a sustained recovery in the coming days.
Moreover, innovative trading platforms, the use of artificial intelligence and investments in technology and advertising are likely to aid the operations of investment banks. While investment banks will likely face increasing technology-related expenses in the near term, these initiatives are expected to improve operating efficiency over time.
The Zacks Investment Bank industry consists of firms that provide financial products and services that include advisory-based financial transactions to corporations, governments and financial institutions worldwide.
The industry players work mainly through three product segments — investment banking (M&As, advisory services and securities underwriting), asset management (AUM-related activities), and trading and principal investments (proprietary and brokerage trading).
The Zacks-defined Financial – Investment Bank Industry is currently in the top 18% of the Zacks Industry Rank. In the past year, the industry has provided 54% returns, while its year-to-date return is 43.1%. Since it is ranked in the top half of Zacks Ranked Industries, we expect the consulting services industry to outperform the market over the next three to six months.
Our Top Picks
We have narrowed our search to five investment bank stocks that have strong growth potential for 2025. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
The Goldman Sachs Group Inc.
Zacks Rank #2 The Goldman Sachs Group’s third-quarter 2024 results benefited from a strong performance in investment banking business (IB). GS’ refocus on the core strengths of IB and trading businesses through restructuring initiatives and opportunistic buyouts should boost its presence in overseas markets. Improvement in global deal-making and underwriting activities and GS’ leading position will likely aid IB's revenue growth. A decent liquidity position will aid GS’ capital distribution.
The Goldman Sachs Group has an expected revenue and earnings growth rate of 7.5% and 14.8%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 2.7% over the last 60 days.
Morgan Stanley
Zacks Rank #2 Morgan Stanley has been benefiting from the resurgence of its IB business and a solid deal-making pipeline. We project IB fees to jump 31% in 2024. MS’ efforts to become less dependent on capital-markets-driven revenues, inorganic expansion/strategic alliance and relatively high rates will support top-line growth. We expect MS’ total revenues to witness a CAGR of 6% by 2026. MS’ strategic alliance with Mitsubishi UFJ will bolster its presence in Japan and support footprint diversification efforts.
Morgan Stanley has an expected revenue and earnings growth rate of 4.8% and 7.7%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.1% over the last 30 days.
Bank of America Corp.
Zacks Rank #2 Bank of America’s third-quarter 2024 results show a revival of capital markets business. Though the business shows signs of a solid resurgence, the challenging macroeconomic backdrop will weigh on BAC.
While high funding costs are a concern, BAC’s net interest income (NII) will be positively impacted by interest rate cuts. We project NII to witness a CAGR of 2.7% by 2026. BAC plans to open financial centers in new and existing markets and improve digital capabilities. These will support the top line. We project BAC’s total revenues to grow 3.2% in 2024.
Bank of America has an expected revenue and earnings growth rate of 4.4% and 11.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 1.1% over the last 30 days.
Wells Fargo & Co.
Wells Fargo’s third-quarter 2024 results benefitted from higher non-interest income and a decline in expenses. WFC’s progress on efficiency initiatives, such as branch and footprint reduction, will support cost reduction and drive bottom-line growth. A decent deposit balance is likely to support WFC’s financials. With a decent liquid profile, the capital distribution move of WFC seems sustainable.
Wells Fargo has an expected revenue and earnings growth rate of 1.2% and 3.9%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.4% over the last seven days.
Raymond James Financial Inc.
Zacks Rank #1 Raymond James Financial fiscal fourth-quarter results reflected solid IB performance. Revival of RJF’s IB business on the back of the robust pipeline and deal-making activity will support related fees.
We expect IB fees to rise 23.4% in fiscal 2025. Strategic acquisitions, which enhance RJF’s product offerings, diversify revenues and expand its footprint globally, are expected to bolster the top line. Our estimate for RJF’s net revenues implies a CAGR of 5.4% by fiscal 2027.
Raymond James Financial has an expected revenue and earnings growth rate of 10% and 7.8%, respectively, for the current year (ending September 2025). The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 30 days.
Zacks Naming Top 10 Stocks for 2025
Want to be tipped off early to our 10 top picks for the entirety of 2025?
History suggests their performance could be sensational.
From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.
Be First to New Top 10 Stocks >>The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Bank of America Corporation (BAC) : Free Stock Analysis Report
Wells Fargo & Company (WFC) : Free Stock Analysis Report
Morgan Stanley (MS) : Free Stock Analysis Report
Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
