Bill Gross, the Bond King, is back in the news this week. Last week, I detailed how Bill Gross focused on equity arbitrage opportunities while forecasting a recession. Now, Bill Gross is emphasizing bank stocks.
The Bond King specifically looks to regional banks with low price-to-book ratios and high dividends. These are cornerstones of intelligent value investing. At the same time, broad banking concerns are pushing some stocks down further than they may deserve. Bill Gross’ bank stocks target that misalignment, capturing potential upside as the market adjusts while generating income.
Bill Gross’ thesis is that these three stocks have bottomed out, meaning they’re likely to only climb from here. Ultimately, even if the per-share pricing doesn’t explode in the short term, value investors will be happy to own these bank stocks based on fundamentals and dividend yield.
Citizens Financial Group (CFG)
Citizens Financial Group (NYSE:CFG) stands as one of Bill Gross’ strongest bank stock picks. It also has the most upside potential. Headquartered in Rhode Island, this banking firm boasts a favorable 0.58 price-to-book ratio and an attractive 6.42% forward dividend yield. When you factor in buybacks, the total yield exceeds 13%.
CFG severed its ties with the Royal Bank of Scotland (NYSE:NWG) in 2015. Since then, its undergone a remarkable transformation from a challenging financial situation rooted in post-2008 inefficiencies. This transformation has set the company on a prosperous trajectory. At the same time, management can look to the past for valuable insights when navigating current economic challenges.
Furthermore, Citizens Financial Group’s primary client base, people and businesses in Rhode Island, is recovering faster than the broader U.S. economy. A recent report indicates that Rhode Island’s business development surged by over 6.8% in the previous quarter, starkly contrasting the modest 0.3% growth nationally. Notably, one of Citizens’ core financial offerings is mid-market lending, and the improved business prospects in Rhode Island bode well for this affordable bank stock.
Truist Financial Corp (TFC)
Truist Financial Corp (NYSE:TFC) had its ex-dividend date on September 9th. This means there’s still an opportunity to secure a substantial 6.77% dividend yield from this budget-friendly bank stock. With TFC’s price-to-book ratio resting at a mere 0.75, there’s little incentive to sell. That’s especially true if your primary focus is capitalizing on the income potential.
Recently, Truist initiated an assertive realignment strategy to adapt to evolving economic conditions while emphasizing its core strengths in consumer and commercial banking solutions. In a significant move, TFC divested its insurance brokerage business for $10 billion to a private equity entity last month. This substantial cash injection, clearly advantageous for shareholders, represents just one aspect of the overall positive transformation.
This year, Truist faced considerable challenges in the banking sector. Tough times led experts to emphasize the necessity of a swift turnaround or face adverse consequences. Furthermore, Truist is actively enhancing efficiency and cost-cutting measures in other areas, with the anticipated financial benefits expected to materialize around mid-2024. In the interim, investors can leverage the upside potential of this bank stock amidst the prevailing market conditions, all while enjoying a respectable dividend yield.
KeyCorp (NYSE:KEY) specializes in middle-market commercial banking, focusing on Ohio and New York. This makes it an excellent choice for investors seeking an affordable bank stock that taps into a rapidly growing economic sector. KEY offers an enticing 7.28% dividend yield, primarily driven by the interest income generated from these commercial loans.
Despite facing a challenging period earlier in the year, Morningstar estimates KEY’s fair per-share value to be 43% higher than its current trading price. Furthermore, the consensus among surveyed analysts is overwhelmingly positive, all recommending a Buy (10) or Hold (6). Notably, there are no Sell recommendations, underlining the optimism surrounding KEY’s potential. EquitySet, a reputable research firm, also aligns with the broader consensus, indicating a fair value that stands 26% above the current market price.
Whether you adopt a bullish perspective, as reflected in Morningstar’s assessment, or a more cautious stance akin to EquitySet’s evaluation, Bill Gross’ assessment of this regional bank stock is aligned with analyst consensus, meaning less risk to investors.
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.