The markets are obviously extremely volatile.
They were down 2% yesterday and as of publishing this the Nasdaq is up 3% today. With so much day-to-day movement, many investors are curious about what's coming next.
That's where we come in 👋
And as we told you yesterday, the volatility is unlikely to end soon.
But once things start to calm down, and we approach the inevitable interest rate increases and Fed tapering, we fundamentally believe the reversal in what stocks are doing well will change.
And now with Jerome Powell saying as of 3pm EST today, that rising rates are coming -- this becomes that much more likely to be a huge stock in 2022.
And as we've been preaching for an entire year now, we love financials. We've written about this stock before, but we absolutely love Silicon Valley Bank (SIVB).
If you're looking for a financial stock that has serious upside this year and will be massively affected by interest rate movements, look no further -- 2022 is going to be a wild ride for them.
Let's get into the details below 👇
What's Going On With Silicon Valley Bank:
Last we wrote about SIVB, the stock was having a great 2021, but it took a turn for the worst in Q4.
The reason this happened was largely due to their affiliation with the tech industry.
For those of you unaware, SIVB is the go-to bank for many debt lending programs with startups and tech companies. Therefore when tech took a nosedive, SIVB followed suit.
And their revenues associated with those companies ending up decreasing by 50% in the 4th quarter of 2021 relative to the 4th quarter in 2020.
And while we think this will bleed into Q1, we fully believe this is oversold for the time being.
Silicon Valley Bank Outlook:
And that's why this sell-off leads to an amazing buying opportunity for investors willing to wait out the day to day movements.
This is because next to Silvergate, SIVB is the most rate sensitive bank we cover.
And as rates rise and inflation finally peaks, SIVB will receive massive tailwinds in the form of significantly higher revenues and higher margins.
This should lead to their net interest income increasing to over 40% YoY in 2022!
Why We Like The Stock:
But outside of the immediate tailwinds that SIVB has, it is still a financial play that we love.
While they come with significantly more risk than some of the other bank stocks we've recommended before, SIVB also has a few other key features we're also keeping our eyes on. They are:
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SIVB gave upgraded loan growth figures: Previously their management team said they believed average loan balances would increase by 25% but just recently pushed up those estimates to the low 30's. This is mostly coming from strong VC/PE activity in their loan portfolio -- which we believe is sustainable in the long run. Given these loans are sensitive to interest rates, higher balances should increase revenue even more than we originally anticipated!
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This increase in revenue is expected to be re-invested back into their business. Again this is a play on the rise in rates. The rise in rates should increase revenues and the increase in revenues should be re-invested back into their business. Should rates rise even faster than expected than this would only multiply further. We love when we see a business reinvesting revenues back into their business. It means they care about the future of the company and they're generating enough free cash flow to be able to use the excess profits.
What's Next For The Stock:
The stock and financials as a whole are a huge play on rising rates. This is a theme that has a massive probability of playing out, yet not priced into stocks yet.
With the dips across the market over the last few weeks, we're using this time to increase our position -- fully realizing there will be a lot of ups & downs over the next month or two.
But if you're able to ride out the noise, the stock should have a massive 2022!
Price Target: $900 (60% upside)
Current Price: $562
Target Date: End of 2022
Risk/Reward: Medium / High
Rating: Overweight
Ticker: SIVB
Market Cap: $33B
Dividend Yield: 0%