Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry’s 2.5% return has trailed the S&P 500 by 15 percentage points.
Investors should tread carefully as many of these banks are also cyclical, and any misstep can have you catching a falling knife. Taking that into account, here are three bank stocks best left ignored.
TowneBank (TOWN)
Market Cap: $3.23 billion
Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ:TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.
Why Are We Hesitant About TOWN?
- Sales trends were unexciting over the last five years as its 5.6% annual growth was below the typical banking company
- Day-to-day expenses have swelled relative to revenue over the last five years as its efficiency ratio increased by 16.1 percentage points
- Performance over the past five years shows its incremental sales were less profitable, as its 1.3% annual earnings per share growth trailed its revenue gains
TowneBank is trading at $35.41 per share, or 1.1x forward P/B. If you’re considering TOWN for your portfolio, see our FREE research report to learn more.
Citizens Financial Group (CFG)
Market Cap: $26.99 billion
Tracing its roots back to 1828 as a community-focused institution, Citizens Financial Group (NYSE:CFG) is a regional bank that provides retail and commercial banking services to individuals, small businesses, and large corporations across 14 states.
Why Are We Wary of CFG?
- 6.6% annual net interest income growth over the last five years was slower than its banking peers
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- Annual tangible book value per share growth of 2.3% over the last five years was below our standards for the banking sector
At $63.63 per share, Citizens Financial Group trades at 1.1x forward P/B. Read our free research report to see why you should think twice about including CFG in your portfolio.
WaFd Bank (WAFD)
Market Cap: $2.21 billion
Founded in 1917 and rebranded from Washington Federal in 2023, WaFd (NASDAQ:WAFD) is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.
Why Are We Bearish on WAFD?
- Muted 7.4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Incremental sales over the last two years were less profitable as its earnings per share were flat while its revenue grew
- Estimated tangible book value per share decline of 2.8% for the next 12 months implies a challenging profitability environment
WaFd Bank’s stock price of $29.94 implies a valuation ratio of 0.8x forward P/B. To fully understand why you should be careful with WAFD, check out our full research report (it’s free).
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