3 Cheap Bank Stocks That Smart Investors Will Snap Up Now
The U.S. banking industry faced one of its worst shocks of the past decade this March. The sudden surge in interest rates caused depositors to pull their money from some banks; meanwhile, the value of many fixed-income investments declined given the change in interest rates. Investors dumped bank stocks across the board given the heightened uncertainty. This has led to the rise of cheap bank stocks.
The sector is now bouncing back as Q2 earnings have been stronger than expected for most firms. While there was an acute crisis in March, it doesn’t seem to be having too much of a lingering impact on most of the industry.
While many financial industry companies have already seen their share prices bounce back, there are still cheap bank stocks today. These three bank stocks for smart investors all are selling at a discount to book value, meaning they are at attractive pricing today. Furthermore, these three are low-cost bank stocks, all selling for less than $15/share while offering attractive dividend yields as well.
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First Horizon (FHN)
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First Horizon (NYSE:FHN) is a Tennessee-based regional bank. Large Canadian bank Toronto-Dominion (NYSE:TD) was planning to acquire First Horizon to expand its U.S. footprint.
However, there were regulatory hurdles with that deal, and TD ultimately ended up walking away. That left First Horizon in limbo. The deal break happened just as the regional banking sector was taking its own tumble; the combined forces of these events sent FHN stock down from $25 to a low of just $9 per share. This makes it one of those cheap bank stocks to buy.
Shares have bounced to $13 today. Still, they’re off by nearly half from when it seemed like TD would acquire the bank. This leaves First Horizon deep in value territory. Even with the downturn in the industry this year, First Horizon remains strongly profitable with the stock at less than 9x forward earnings. Shares also yield 4.5%.
New York Community Bancorp (NYCB)
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New York Community Bancorp (NYSE:NYCB) is a bank that, as the name would suggest, has long been focused on lending in the New York City metro area.
In recent years, however, the bank has branched out. First, it bought Flagstar, which has a more national footprint and an extensive mortgage lending business. Then, in March, thanks to its strong balance sheet, New York Community Bancorp was able to step in as the FDIC-assisted rescuer for the failed Signature Bancorp.
This was a tremendous deal for NYCB, with the bank buying a collection of Signature’s loans at a massive $2.7 billion discount to their fair value. Given NYCB’s just over 700 million shares of stock outstanding, this added nearly $4/share overnight to NYCB stock’s book value per share.
The first post-deal quarterly earnings report for the bank just came in. Loans are performing well, and the bank’s now much larger deposit base led to a surge in profitability. Analysts loved the report, with JPMorgan in particular upgrading shares saying that NYCB is now a growth bank that will take market share going forward. NYCB stock still goes for just 10 times forward earnings and offers a 5% dividend yield.
Hope Bancorp (HOPE)
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The banking industry could use reasons for optimism right now. The aptly named Hope Bancorp (NASDAQ:HOPE) is one that should leave investors feeling more upbeat.
Headquartered in Los Angeles, Hope is the nation’s first Korean-American super regional bank. It had more than $20 billion in assets as of June 30, 2023. Hope’s efforts to lean into its particular client base have paid off during this current banking crisis. Deposits have been stable as the firm’s customers have proven loyal to Hope.
HOPE stock sank from $15 last summer to a trough of just $7.50 this spring. Shares have bounced back to $10.50, which is a decent rebound but still leaves them far below where they were prior to the storm. Regardless, earnings have held up, and the bank is offering a greater than 5% dividend yield. There is a stigma around California banks at the moment, but Hope’s unique business model should help it recover going forward.
On the date of publication, Ian Bezek held a long position in HOPE and NYCB stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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