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Bank stocks are cheap -- here are the 20 best players in the industry

Dow Jones2021-10-03

Bank stocks have soared during 2021, but are still trading lower than usual to the market as a whole

Bank stocks have had a good run in 2021, but they still lag behind the broader market's recovery since the pandemic doldrums of 2020. And now that the Federal Reserve seems likely to allow interest rates to rise soon, the banks may have an easier time improving their profits.

Below is a list of the best-performing U.S. banks over the past five years, based on returns on common equity.

During her recent discussion of stock-market strategy on CNBC, Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America, said that small-cap stocks, especially energy and financial companies, were trading at compelling valuations and could give investors "more earnings yield for the same price."

Here's a recent screen of energy stocks.

Low valuations

Taking a broad look at forward price-to-earning valuations for the S&P 1500 Composite Index (made up of the large-cap S&P 500 , the S&P 400 Mid Cap Index $(MID)$ and the S&P Small Cap 600 Index ), bank stocks are trading relatively cheaply:

The S&P 1500 bank industry group trades at a price-to-earnings ratio of 12.6, based on weighted consensus price-to-earnings estimates for the next 12 months among analysts polled by FactSet. The full S&P 1500 Composite Index trades at a forward P/E of 20.5. The average forward P/E for the banks over the past 15 years has been 12.5, while the average forward P/E for the full index has been 15.4.

So the banks now trade for 61% of the S&P 1500's forward P/E valuation, while they have traded for 81% on average.

And that is despite the banks' outperformance this year, returning 34%, while the S&P Composite 1500 has returned 20%.

A coming slowdown of bond purchases by the Federal Reserve is expected to push long-term interest rates higher, which for most banks will mean increased profitability, with wider spreads between rates on loans and those paid on deposits. The market has been anticipating the Fed's change in policy, pushing yields on 10-year U.S. Treasury notes to 1.49% early on Sept. 27 from 1.31% on Sept. 20.

Bank-stock screen -- return on common equity

While Subramanian emphasized small-cap stocks, it seems reasonable to look at all bank stocks and find the ones with the best average returns on common equity. A screen on ROCE can work well within an industry such as banking, because the banks are required to hold minimum levels of capital, including common equity, by regulators. In other industries you may have healthy profitable companies that have negative equity. An example is McDonald's Corp. $(MCD)$, which had negative total shareholders' equity of $5.8 billion as of June 30.

It also makes sense to include large banks in our screen because the biggest and most complex U.S. banks are required by regulators to hold more capital than smaller banks. If a big bank make makes the list, so be it: Its ROCE denominator is larger, so it has more of a hill to climb.

Starting with the Russell 3000 Index, which represents about 98% of U.S. stocks by market capitalization, we identified 229 banks. This includes some companies that are investment banks and/or brokers. The determining factor for a company such as Charles Schwab Corp. $(SCHW)$, for example, is whether of not it files a bank or savings and loan holding company report with the Federal Reserve. If it does, it means the company is gathering deposits insured by the FDIC. Schwab does so through its subsidiary, Charles Schwab Bank SSB.

Looking back over the past 20 reported quarters through June 30, here are the 20 banks with the highest average returns on common equity. The list is limited to U.S. banks for which the data is available from FactSet for all of those quarters.

Company City Market cap. ($mil) Average ROCE -- 20 quarters Total return -- 5 years
Ameriprise Financial Inc. AMP Minneapolis $30,871 27.66% 208%
American Express Co. AXP New York $139,598 22.95% 197%
MetroCity Bankshares Inc. MCBS Doraville, Ga. $530 22.80% 434%
Discover Financial Services DFS Riverwoods, Ill. $38,934 22.58% 153%
ServisFirst Bancshares Inc. SFBS Birmingham, Ala. $4,176 18.32% 216%
Synchrony Financial SYF Stamford, Conn. $28,616 18.07% 108%
Axos Financial Inc. AX Las Vegas $2,769 16.82% 108%
SVB Financial Group SIVB Santa Clara, Calif. $38,129 16.63% 493%
Western Alliance Bancorp WAL Phoenix $10,740 16.61% 188%
Hingham Institution for Savings HIFS Hingham, Mass. $738 16.46% 168%
Bank of Hawaii Corp. BOH Honolulu $3,301 15.64% 30%
Charles Schwab Corp. SCHW Austin, Texas $136,720 15.38% 162%
Preferred Bank PFBC Los Angeles $982 15.33% 106%
West Bancorp Inc. WTBA West Des Moines, Iowa $488 14.85% 74%
Stock Yards Bancorp Inc. SYBT Louisville, Ky. $1,468 14.35% 90%
Lakeland Financial Corp. LKFN Warsaw, Ind. $1,691 14.18% 110%
Flagstar Bancorp Inc. FBC Troy, Mich. $2,647 14.10% 83%
East West Bancorp Inc. EWBC Pasadena, Calif. $10,669 14.01% 127%
First Financial Bankshares Inc. FFIN Abilene, Texas $6,402 13.76% 165%
Raymond James Financial Inc. RJF St. Petersburg, Fla. $19,165 13.71% 160%
Source: FactSet

Click on the tickers for more about each bank. The MarketWatch quote page can be an excellent start for your own research. Click here for Tomi Kilgore's new, detailed guide to the wealth of information available for free on the quote page.

You can see that most of the banks on the list are relatively small, backing Subramanian's preference for small-caps. But American Express Co. $(AXP.AU)$ made the list, along with Schwab and credit card players Discover Financial Services $(DFS)$ and Synchrony Financial (SYF).

The right-most column contains total returns, with dividends reinvested, for the past five years through Sept. 24. In comparison, the S&P 1500 banking industry group returned 124% and the S&P Composite 1500 returned 111% over the same period.

Analysts' price targets

Here's the list again, in the same order, with a summary of analysts' opinions, dividend yields and forward P/E ratios:

Company Share "buy" ratings Closing price -- Sept. 24 Consensus price target Implied 12-month upside potential Dividend yield Forward P/E
Ameriprise Financial Inc. AMP 77% $271.40 $292.50 8% 1.67% 11.9
American Express Co. AXP 45% $175.72 $182.35 4% 0.98% 22.4
MetroCity Bankshares Inc. MCBS 0% $20.80 $22.50 8% 2.31% 8.2
Discover Financial Services DFS 54% $130.01 $136.22 5% 1.54% 10.4
ServisFirst Bancshares Inc. SFBS 0% $77.05 $70.33 -9% 1.04% 20.4
Synchrony Financial SYF 77% $50.23 $57.21 14% 1.75% 8.9
Axos Financial Inc. AX 88% $46.65 $56.00 20% 0.00% 13.0
SVB Financial Group SIVB 61% $649.96 $671.65 3% 0.00% 26.0
Western Alliance Bancorp WAL 92% $103.07 $120.42 17% 1.36% 11.6
Hingham Institution for Savings HIFS N/A N/A N/A N/A 0.59% N/A
Bank of Hawaii Corp. BOH 17% $81.55 $90.80 11% 3.43% 15.9
Charles Schwab Corp. SCHW 63% $75.59 $83.83 11% 0.95% 23.0
Preferred Bank PFBC 50% $65.91 $73.00 11% 2.31% 10.4
West Bancorp Inc. WTBA 0% $29.48 $32.00 9% 3.26% 10.8
Stock Yards Bancorp Inc. SYBT 25% $55.23 $54.33 -2% 2.03% 17.8
Lakeland Financial Corp. LKFN 0% $66.83 $63.67 -5% 2.04% 18.2
Flagstar Bancorp Inc. FBC 60% $50.08 $62.75 25% 0.48% 7.8
East West Bancorp Inc. EWBC 83% $75.20 $90.91 21% 1.76% 12.6
First Financial Bankshares Inc. FFIN 0% $44.97 $45.33 1% 1.33% 30.3
Raymond James Financial Inc. RJF 82% $93.13 $106.79 15% 1.12% 14.2
Source: FactSet

免责声明:本文观点仅代表作者个人观点,不构成本平台的投资建议,本平台不对文章信息准确性、完整性和及时性做出任何保证,亦不对因使用或信赖文章信息引发的任何损失承担责任。

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评论34

  • Mm101
    ·2021-10-04
    Yes
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    • Mm101
      Yes
      2021-10-04
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    • Mm101
      Buy
      2021-10-04
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    • Mm101
      Df
      2021-10-04
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    查看更多 2 条评论
  • pekss
    ·2021-10-04
    Good reflation plays
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  • Bull1973
    ·2021-10-04
    Ok
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  • SPOT_ON
    ·2021-10-04
    Like n follow 
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    • SPOT_ON
      love ❤ 😍 💖 ❣ 💕 💘 ❤ 😍
      2021-10-04
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    • Bull1973
      Ok
      2021-10-04
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  • bulldoze
    ·2021-10-03
    Good
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    • jaswsf
      Buy
      2021-10-03
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  • 小小爆米花
    ·2021-10-03
    Ya
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  • Jeromelim
    ·2021-10-03
    good to consider
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  • SnailWalker
    ·2021-10-03
    invest for passive income!
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  • Jalopy
    ·2021-10-03
    Pls 👍 
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  • 987ce65
    ·2021-10-03
    Ok
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  • Delfort
    ·2021-10-03
    Thanks for sharing
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    • guohaoer
      Ok
      2021-10-03
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    • Lkl8
      Yes
      2021-10-03
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  • Boink
    ·2021-10-03
    Banks are legacy?
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  • MuppyKoh
    ·2021-10-03
    Please like
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    • Jackson83
      Ok
      2021-10-03
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    • Jalopy
      Done
      2021-10-03
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  • KBchan
    ·2021-10-03
    Please like
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  • agodakkkf
    ·2021-10-03
    Good
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  • Andrewinho
    ·2021-10-03
    Undervalue stocks? 🤔
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    • TKCat
      not cheap at all
      2021-10-03
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  • pangchingwen
    ·2021-10-03
    good
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  • Linda1127
    ·2021-10-03
    Interesting 
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  • hoa
    ·2021-10-03
    Personally wont go for bank stock
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    • 4a909e0e
      ya
      2021-10-03
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  • Eskay_Tew
    ·2021-10-03
    Bank stock such as bank of America? 
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    • Jackosen
      yeah
      2021-10-03
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    • Eskay_Tew
      ok will look into it
      2021-10-04
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    • Eskay_Tew
      move on
      2021-10-08
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