6 Bank Stocks That Could Stand Out as the Sector Soars

Bank stocks had rebounded sharply in the last two months of 2020 even before the rally over the past two weeks. People holding the shares were pulverized in March, but got a reprieve in November as positive news about vaccines emerged and the election results raised hope for government spending to prop up the economy.

Investors will be looking for signs that the upswing can continue. They will want evidence that lenders have set aside enough money to cover potential loan losses, and will hope that some will discuss when the billions they put in reserves can be released into earnings. Investors will also want to hear bank CEOs’ assessment of how quickly the pandemic’s damage to the economy might heal.

While several bank stocks have returned to their pre-pandemic levels, some still have room to rise before they get there. Other banks may lag their peers on a valuation basis.

Barron’s recently ran a screen of 64 of the largest banks based on price to tangible book value, return on equity, and dividend yield, using Bloomberg data. On average, we found that the cohort was trading at 1.8 times tangible book value. We then looked for lenders trading below that level that have histories of delivering higher returns on equity.

(A table showing the results is below.)

Based on this analysis and some qualitative data, we found six banks that could provide compelling opportunities. Two of the banks Barron’s identified are self-help stories that may represent the most compelling opportunities for investors.

Citigroup and Wells Fargo trade at 0.9 times tangible book value and 1 times tangible book value, respectively. Citigroup shares were especially beaten up late last year when the bank was slapped with a $400 million consent order by regulators for weaknesses in its risk management and internal controls. The bank had already been working to improve those deficiencies; the stock could benefit when Jane Fraser officially takes over as CEO next month.

Wells Fargo is in the midst of a multiyear effort to recover from its fake- accounts scandal, which emerged in 2016. Under Chief Executive Charlie Scharf, who has been in the role for just over a year, the bank is looking to cut costs and become more efficient. Analysts at UBS recently estimated that with every 1 percentage-point reduction in the bank’s 2022 efficiency ratio, pretax earnings could increase by 3.8%.

Goldman Sachs wasn’t hit nearly as hard as other banks during 2020’s downturn. In fact, thanks to robust trading and deal making activity in the back half of the year, the stock has been able to notch a gain. But even with its strength, Goldman trades at 1.3 times tangible book value. Capital markets activity is expected to remain strong in 2021 and the bank plans to resume share repurchases this year, so Goldman’s stock still has some juice.

Fifth Third Bancorp (FITB) also looks good under Barron’s screen, trading at 1.4 tangible book value. The bank is expected to benefit from cost-savings initiatives and share repurchases, while currently offering a 3.4% dividend yield. Comerica (CMA), trading at 1.2 times tangible book while yielding 4.3%, may also provide a compelling opportunity for investors.

Finally, Columbus, Ga.–based Synovus Financial, trading at 1.3 times tangible book and yielding 3.5%, is another bank investors will want to watch. Analysts at Keefe, Bruyette & Woods recently said that the bank is a likely merger candidate, which may also be a catalyst for the stock.

Write to Carleton English at [email protected]