The 1 Bank Stock I Want to Own in 2015

By Markets Fool.com

The financial sector has been doing well for a few years now, and many experts think the strong performance will continue. But which banks will outperform in 2015?

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We asked three of our analysts which bank stocks they want to own in 2015, and here is what they had to say.

Sean Williams: Although it's been on my watchlist for nearly a year, I believe 2015 could be the perfect time to pull the trigger on First Niagara Financial Group .

First Niagara Financial, a retail and commercial banking operating in the Northeast (primarily New York), has been one the banking sector's worst performers in recent years. After surviving the Great Recession basically unscathed, First Niagara chopped its dividend in half and sold a bunch of its common stock in order to purchase nearly 200 branches from HSBC for $1 billion in 2011. On paper the move made sense: it was going to expand First Niagara's presence in southern New York, boost awareness of the brand, and increase profitability.However, the actual stock dilution and dividend cut didn't sit too well with investors.

Then, in the bank's most recent quarter, First Niagara shareholders were dealt an $800 million writedown based on previous acquisitions. Long story short, investors aren't pleased with management.

While I certainly wouldn't give CEO Gary Crosby an "A" for his performance, I believe the foundation is set for a much better 2015 with this bad news now in the rearview mirror. For instance, nonperforming assets stood at just 0.57% of total assetsat the end of the third quarter,while net charge-offs stood at just 0.27%. This tells me the credit quality of the loans in First Niagara's loan portfolio is good.

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First Niagara's focus on growing deposits should also be exalted. Average transactional deposit balances in the third quartergrew 7% from the prior year quarter, while average noninterest-bearing checking deposit balances grew by an annualized rate of 14% compared to the prior quarter. The prospect of rising lending rates in 2015 is a perfect opportunity for First Niagara to boost profitability.

Sporting a 4% dividend yield and a forward P/E of 12, and valued at a mere 75% of its book value, First Niagara Financial looks very intriguing in 2015.

Dan Caplinger: Most U.S. investors focus on American banks when they invest, but European banks such as Germany's Deutsche Bank presently offer what could become a huge opportunity. Europe is essentially going through its own financial crisis, with central bankers trying to figure out how to stimulate growth and prevent deflationary pressures from turning recessionary conditions into a full-blown depression. Even as many U.S. banks' valuations have recovered from 2008 and 2009 levels, Deutsche Bank and several of its European peers have watched their multiples-to-book value fall even further. Right now, you can buy shares of Deutsche Bank for less than half their book value; even looking at tangible assets, the stock's multiple of about 60% of tangible book points to the lack of confidence about assets on its balance sheet.

Admittedly, problems in Europe could take time to resolve, especially as the European Central Bank contemplates extreme measures such as quantitative easing. But Deutsche Bank lost nearly half its value in 2014, already reflecting all that pessimism. If anything short of a worst-case scenario develops in Europe, then it could be one of the first financial institutions to benefit from a recovery in the banking sector.

Matt Frankel: Although it's not the most popular bank stock among my colleagues, I've toyed with the idea of finally acquiringCitigroup stock, and I think I'm finally going to buy in the next few weeks.

Citigroup has improved significantly since the financial crisis, with much better capital levels and significantly fewer bad assets on the books. In fact, the "legacy" Citi Holdings division has disposed of about 65% of its assets since 2011. While the remaining$103 billion in unwanted assets is certainly a lot, the reduction is still a huge step in the right direction.

Revenue has increasedin key areas of the business, such as consumer banking and institutional banking. The company has settled most of its outstanding legal issues as well and is in the middle of a significant restructuring that will result in Citigroup's exit from 11 international markets in order to focus on those with the most growth potential.

Finally, the biggest boost for Citigroup could come after the Federal Reserve's "stress tests" results are released in March. Citigroup is one of the few remaining major U.S. banks with a dividend stuck at just $0.01 per share each quarter. This year's improvement in capital levels should finally persuade regulators to allow the payout to be increased; such a move could be a big positive catalyst for the stock.

The article The 1 Bank Stock I Want to Own in 2015 originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc and Deutsche Bank AG (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.