This year’s been interesting, to say the least, for stocks: The S&P 500 is down more than 7% and small caps have been slaughtered, with the Russell 2000 down over 11% so far this year.
The confidence everyone had in the Federal Reserve’s rate hike as a boon for banks has evaporated. The PowerShares KBW Bank Portfolio ETF (KBWB) is down more than 17% so far this year and the SPDR KBW Bank ETF (KBE) is down more than 18%.
Even some of my much-loved community banks are taking an early dive as the First Trust Nasdaq ABA Community Bank Index Fund (QABA) is down more than 15% in 2016.
Fortunately for us as investors, Wall Street has a tendency to throw the baby out with the bathwater. Combine that with the fact much of today’s trading is done using exchange-traded funds and not individual stocks and you get a culture which tends to create bargains as the good gets sold with the bad.
To wit, the selloff in banks has created some bargains for long-term patient investors.
Bargain Bank Stocks to Buy: Citizens Financial Group Inc (CFG)
A great example of a bargain created by indiscriminate selling is Citizens Financial Group Inc (CFG). Citizens was spun off by Royal Bank of Scotland Group PLC (RBS) last year and is now an independent company. The Providence, RI-based bank has 1,230 branches and 3,215 ATMs in 11 states across the New England, Mid-Atlantic and Midwest regions.
The bank is in solid shape with an equity-to-assets ratio of almost 15 and nonperforming assets are just 0.67% of total assets. Noted value investors Robert Olstein told CNBC earlier this month that if the bank deployed their capital and got the equity-to-asset ratio down to around 10, it would gain $1 a share in earnings power.
The stock is currently trading at 13% of book value after falling by 17% so far in 2016. If it added that extra dollar of earnings to the current earnings, the company would earn about $2.50 a share next year, giving CFG stock a price-earnings ratio of just 8.
Bargain Bank Stocks to Buy: Comerica Incorporated (CMA)
Concerns about exposure to energy loans are a big part of the reason shares of Comerica Incorporated (CMA) have declined nearly 20% this year.
Comerica has about $4 billion in exposure to energy loans, so low oil prices have put analysts and investors on pins and needles about the CMA stock price. CFO Karen Parkhill reaffirmed on the most recent conference call that the situation is in good hands:
“But know that because prices have dropped precipitously particularly since year-end, we have done an analysis with oil prices remaining at $30 for the entire year. And based on that analysis and conservatively assuming a static portfolio, we would estimate that the impact to our energy reserves could be $75 million to $125 million, which we still believe remains manageable.”
The stock is trading at 75% of book value with a price-earnings of 10 so the shares appear to be in bargain territory. Management seems to think so, as Comerica repurchased 1.5 million shares of CMA stock in the fourth quarter of 2015.
Bargain Bank Stocks to Buy: Bank of Commerce Holdings (BOCH)
Bank of Commerce Holdings (BOCH) in Redding California became a momentum darling at year end 2015, but BOCH came off that rise pretty quickly as the New Year began.
BOCH stock is down about 15% since Jan. 1, but I can’t really a find a valid reason for the decline. Bank of Commerce remains in decent financial shape with an equity-to-assets ratio of 11.92 and nonperforming assets that are just 1.71% of total assets.
With a loan portfolio heavily slanted toward commercial real estate and commercial and industrial lending, Bank of Commerce Holding should continue grow as long as the economy continues to slowly improve.
Of course, it has five offices and $990 million of assets in the attractive Northern California marketplace, so we cannot rule out a takeover given the mergers and acquisitions wave that continues to build in the industry. After the recent decline, BOCH stock sells at 86% of book value and just nine times earnings.
It’s hard to beat that.
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