As most of the wider market bounces back this summer, banks remain beaten down with many cheap bank stocks still trying to recover. Pinpointing individual factors influencing the banking industry would take all day. Still, the broad strokes include high borrowing rates, inflation, increased competition, commercial real estate concerns and growing regulatory demands.
These and other forces converged to kick off the brief, thus far, 2023 Banking Crisis. During the March meltdown, the Morningstar Banking Index, comprised of publicly traded US banks, fell nearly 20%. Since then, the index has outpaced market growth as it’s bounced back 20% compared to the S&P 500 Index’s 15% return over the same period. Still, banks have remained fairly flat since January returning only 0.63% year-to-date.
Unsurprisingly, some stocks are suppressed within the devalued basket of stocks due to industry-wide pressure rather than company-specific problems. For investors bullish on banking, these cheap bank stocks are priced to buy, particularly on the heels of decent earnings reports.
M&T Bank Corp (MTB)
M&T Bank Corp (NYSE:MTB) blew analyst estimates out of the water, reporting a $5.05 EPS. That’s nearly 20% more than the analyst consensus reported by MarketWatch. Somehow, shares remained relatively flat after the surprise beat. No doubt due to industry concerns rather than issues with M&T’s outlook, making the stock decidedly undervalued.
Notably, the firm reported a jump in net interest margin. Although elevated rates put downward pressure on banking services, M&T can pass the higher cost to consumers to stay healthy.
Value investors should combine M&T’s adaptation ability with bargain bin fundamentals. Today, the firm’s price-to-book ratio is 0.96, indicating it’s priced below its assets’ worth. Combine this undervalue indicator with a nearly 5% stock price drop since the beginning of the year, and it’s clear that M&T is an overlooked bank stock play today.
US Bancorp (USB)
Like M&T, US Bancorp (NYSE:USB) published a healthy quarterly earnings report and demonstrated adaption to higher interest rates. The company’s consumer-based services include mortgage banking and wealth management. These diverse revenue streams bode well for the company’s future. Moreover, the firm’s avoidance of investment banking means it avoids much of the exposure risk firms like Goldman Sachs (NYSE:GS) embrace.
US Bancorp’s regional focus, consumer emphasis and risk avoidance make it ideal for investors interested in banks with limited downside. Likewise, the company is forward-looking enough for tech enthusiasts as the firm continually adapts to changing digitization expectations. In March, the firm invested in Ownera, a startup firm “working to digitize paper-heavy and illiquid private markets, allowing banks, asset managers and exchanges to route assets more efficiently.” This investment is just one of many in US Bancorp’s fintech portfolio. A future-focused orientation helps ensure the company’s longevity as it entrenches itself in the future of finance.
Investors should combine a 1.27 price-to-book ratio with an earnings beat, healthy profits from interest income and flexibility in future adaptations. These and other factors make US Bancorp a quality play in the world of cheap bank stocks.
Comerica Incorporated (CMA)
Comerica (NYSE:CMA) has a middle-market commercial lending focus which makes it an ideal play for the changing economic landscape. Middle-market lending represents $6.3 trillion worth of opportunity, and rising rates mean creditors like Comerica can be more discerning in their lending practices while charging a premium.
Furthermore, the company’s core loan portfolio is largely made up of adjustable-rate options. This exposes the company to interest rate risk if the U.S. Federal Reserve slashes current levels, but this scenario isn’t likely. We’re still expecting two more rate hikes this year, and the forecast isn’t planning for a drop in the medium term. This means Comerica will keep pace with the Fed and reap greater interest income even as borrowing costs increase.
Finally, Comerica has an unmatched 20.5% return on equity and a whopping 32% net margin. These stats are nearly unheard of in the broad banking sector, making Comerica one of the best bank stocks today.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
