The Banks: Value Stocks or Traps?
(0:45) - Is Now A Good Time To Start Investing In The Banking Industry?
(5:15) - Finding Strong Value Stocks Among The Traps: Tracey’s Top Stock Picks
(28:30) Episode Roundup: OZK, BAC, PNC, CMA, WSBC
Podcast@Zacks.com
Welcome to Episode #365 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
The banks are back in the spotlight again and not for a good reason. The stocks have sunk again. The Regional Bank ETF (KRE) is down 10% over the last month. Some banks are even returning to their 52-week lows.
Is this a buying opportunity in the banks?
Value or Value Trap?
Just because a stock sells off, or hits 52-week lows, doesn’t mean it’s a value. Additionally, just because a company has cheap fundamentals, like a low P/E or P/S ratio, that doesn’t mean it’s always a value.
The key to finding true value stocks lies in the earnings.
Are earnings on the decline or on the rise? Are analysts raising earnings estimates or are they cutting them? A company can have a dirt-cheap P/E but if earnings are falling off a cliff, that does not mean that company is a deal.
Earnings are key to determining whether a company is a value or a trap.
5 Bank Stocks: Values or Traps?
1. Bank OZK (OZK)
Bank OZK is a regional bank headquartered in Arkansas. It has big exposure to real estate, mostly through multi-family construction loans. Bank OZK recently raised its quarterly dividend 2.8%. It now yields 4.2%.
Shares of Bank OZK are down 10.7% over the last month. It is cheap on a P/E basis with a P/E of just 6.1.
3 estimates have been revised higher, with 1 revised lower, in the last 30 days for 2023. Earnings are expected to rise 25% in 2023.
Is Bank OZK a value or trap?
2. Bank of America (BAC)
Bank of America is one of Berkshire Hathaway’s largest equity positions. It has been hitting new 52-week lows recently. Shares are down 21% year-to-date.
It’s cheap with a forward P/E of 7.6. Bank of America’s dividend is also yielding 3.7%.
For the full year, 1 estimate has been raised, and 1 lowered in the last week. Bank of America’s earnings are expected to rise 6.6% this year.
Is this a buying opportunity in Bank of America?
3. The PNC Financial Services Group, Inc. (PNC)
The PNC Financial Services Group is a large regional bank headquartered in Pittsburgh. Shares have plunged 23.8% year-to-date and over a 2-year basis are down 40.8%.
Shares are cheap, with a forward P/E of 8.9. The PNC Financial Services Group also pays a dividend, currently yielding 5.1%.
1 estimate for 2023 has been raised, and 2 lowered in the last week. Earnings for the full year are expected to decline 3.4%.
Is The PNC Financial Services Group a value or a trap?
4. Comerica Inc. (CMA)
Comerica is a regional bank with operations in Texas and Michigan and several other states. It has a market cap of $5.3 billion.
Shares of Comerica have fallen 39.9% year-to-date. It’s dirt cheap, with a forward P/E of just 5.1.
However, the analysts are bearish as 2 estimates have been cut for the full year in the last week but none have been raised in that time. Earnings are expected to fall 9% this year.
Comerica pays a dividend, currently yielding 6.8%.
Is Comerica a value or a trap?
5. WesBanco, Inc. (WSBC)
WesBanco is a regional bank headquartered in West Virginia. It has a market cap of $1.4 billion.
Shares of WesBanco have sunk 32.5% year-to-date. The stock is cheap, but not as cheap as some of the other banks on this list. It has a forward P/E of 9.2.
The analysts have not made any changes to WesBanco’s full year earnings estimates in the last 60 days. But earnings are expected to fall 14.1% this year.
WesBanco pays a dividend, currently yielding 5.7%.
Should WesBanco be on a value investor’s short list?
What Else Do You Need to Know About Value Traps?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of OZK in her personal portfolio and in Zacks Value Investor portfolio.]
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Bank of America Corporation (BAC) : Free Stock Analysis Report
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
Comerica Incorporated (CMA) : Free Stock Analysis Report
WesBanco, Inc. (WSBC) : Free Stock Analysis Report
Bank OZK (OZK) : Free Stock Analysis Report
