Bank stocks have been under the spotlight since the Presidential election results in November 2016. Several favorable developments including higher interest rates, easing of stringent banking regulations and lower tax rates are likely to continue having a positive impact on banks’ financial performance.
Also, the domestic economy, on which banks are primarily dependent, has been showing signs of improvement with rise in GDP numbers, increasing consumer spending and unemployment rate remaining at historically low levels. Additionally, interest rate hikes have benefited banks. With two more expected this year, banks are projected to continue gaining from the rising rates. Thus, the future looks bright for banks.
Driven by investors’ interest, price performance of banks has been impressive. So far this year, collective Banks & Thrifts have rallied 5.9% compared with SPDR S&P Regional Banking ETF’s KRE rise of 4.3% and Zacks Finance sector decline of 4.6%.
Year-to-Date Price Performance
Plenty of Upside Left
Banking stocks look undervalued compared with the broader sector.
Looking at the Banks & Thrifts’ price-to-book ratio, which is the best multiple for valuing banks as large variations in the earnings results from one quarter to the next, investors might still want to pay more. Banks & Thrifts currently has a trailing 12-month P/B ratio of 2.07, which compares favorably with 2.49 for the sector.
Price-to-Book Ratio (TTM)
Therefore, riding on expectations of further rate hikes and continued improvement in the operating environment, banking stocks have significant growth prospects in the quarters ahead. To cash-in banks’ growing trend in the future, this is the right time to add a few stocks to your portfolio.
Selecting the Winning Bank Stocks
We have taken the help of the Zacks Stock Screener to select the favorable stocks. To shortlist the stocks from the vast universe of banking, we have picked those that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
To further filter the list, we selected stocks that have outperformed the Zacks Finance sector so far this year with a market cap of $500 million or more. Also, these are expected to witness 25% or more earnings growth in 2018.
Further, the stocks have a Value Score of A or B. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are the four stocks that fulfilled all these criteria:
The Bancorp, Inc. TBBK, based in Wilmington, DE, carries a Zacks Rank #2 and has a Value Score of A. Shares of the company, having a market cap of $594 million, increased 6.8% so far this year. Further, the company is anticipated to witness earnings growth of 54.8% this year.
Headquartered in Pasadena, CA, East West Bancorp, Inc. EWBC, carries a Zacks Rank #2 and has a Valuer Score of B. So far this year, the company has recorded an 8.6% rise in its share price. With a market cap of $9.6 billion, it is expected to record 35.6% earnings growth in 2018.
Atlanta, GA-based Fidelity Southern Corporation LION has a Value Score of A and carries a Zacks Rank #2. The company shares have risen 17.8% year to date. Also, the bank, with a market cap of $694 million, is projected to record 27.8% year-over-year earnings growth in 2018.
Popular, Inc. BPOP, with a Zacks Rank #2 and Value Score of B, has recorded 27.7% jump in its share price so far this year. This Hato Rey, PR-based bank, with a market cap of $4.6 billion, is expected to witness 60.5% earnings growth this year.
Individual Company Year-to-Date Price Performance.jpg)
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