By Ann McQueen
The banking industry is certainly volatile and fear-laden during current economic conditions and doubts. The recent announcement of the federal government’s lawsuits against several mortgage giants has exasperated investor skepticism, driving share prices to record lows. We have identified five banking stocks with positive long-term outlooks that we believe are very undervalued, thanks to the recent onslaught of bad news.
Bank of America Corporation (BAC) – The news of the Federal Housing Finance Agency’s lawsuits is hitting BAC hard, as discussed in this Wall Street Journal brief and this New York Times article. BAC led declines among its peers in early morning trading, as noted here. Share price ranged around $7.91, near its 52-week low of $6.01. The banking giant with market capitalization of $80.16 billion shows a loss per share is $1.64. It is paying a .5 percent dividend. BAC posted a decline in quarterly revenue of 52.6 percent, while its competitors Citigroup Inc. (C) showed quarterly revenue growth of 12.20 percent, JPMorgan Chase & Co. (JPM) posted 14.9 percent quarterly growth, and Wells Fargo and Company (WFC) showed 6.6 percent quarterly growth. The competition’s earnings per share also look much better. C’s earnings per share is $3.24, JPM’s is $4.68, and WFC’s is $2.58. Making matters worse, according to this article, the Federal Reserve requested that BAC provide contingency plans for raising capital. BAC mentioned the possibility of issuing tracking shares, which many say places Merrill Lynch in the position of a spin-off. According to this Seeking Alpha article, BAC is not much more than a risky bet. It is the center of focus in a whirlwind of bad news, and it is leading the pack on a downward spiral. It may even be forced into a position to spin off its most profitable unit. As its stock tanks, if you buy when everyone else is selling, BAC may be an option for you. This Motley Fool writer provides a glimmer of hope for BAC by considering its book value, capitalization, and forward earnings multiple.
Barclays PLC (BCS) – UBS upped its recommendation of BCS to a buy from neutral, as mentioned here. The Motley Fool article mentioned above also notes that BCS is minimally exposed to the sovereign debt crisis, which improves its balance sheet. As this article points out, a set of recommendations on making the British banking industry safer and more competitive is imminent. BCS’s market capitalization is $32.79 billion. It posted a quarterly revenue decline of .5 percent, while its competitor Royal Bank of Scotland Group PLC (RBS) declined by 24.6 percent. Other competitors posted gains. Deutsche Bank AG (DB) grew 16.9 percent, and HSBC Holdings PLC (HBC) grew 8.4 percent. BCS’s trailing 12-month net income of $4.28 billion also fares pretty well against the competition. DB shows $3.8 billion, and RBS shows a net loss of $4.33 billion. HBC showed the highest at $15.05 billion. BCS posted earnings per share of $1.36, while DB showed $4.19 and HBC showed $4.21. RBS showed a loss per share of $0.78. BCS’s dividend yield is $2.3 percent. It continued to trade Friday around $10.77, very near its 52-week low of $9.53.
Hudson City Bancorp, Inc. (HCBK) – Trading at its 52-week low, HCBK shows a loss per share of $0.43. Its dividend yield of 5.2 percent is very attractive. With market capitalization of $2.88 billion, it is smaller than its competitors BAC with $74.99 billion and JPM with $136.1 billion. One Seeking Alpha writer likes HCBK, among other financial stocks, as noted here.. Another Seeking Alpha writer likes HCBK’s dividend yield, forward price to earnings ratio of 7.57 and liquidity, as discussed here. HCBK is certainly a company to consider.
Sun Bancorp Inc. (SNBC) – SNBC is another banking stock that has been clobbered by market conditions and trends. Currently trading around $2.93, it remains closer to its 52-week low of $2.30 than to its high of $5.45. Loss per share is $3.40. This Seeking Alpha article discusses recent purchases by SNBC insiders, noting that insider buying is an indicator that a stock is undervalued. This article with additional information ran a week later. On August 24, we caution investors against seeing low share price as an indication of good value. Our article appears on Seeking Alpha here. In it we consider the competition PNC Financial Services Group (PNC) as a viable alternative. We like PNC’s cash flow, solid earnings and dividend yield. PNC posted earnings per share of $6.80 while SNBC posted a losses per share of $3.40. Investors who can stomach risk may follow the lead of company insiders and consider SNBC.
Citigroup, Inc. (C) – As banking stocks continued to tank Friday, C’s share price, remained near $28.80, closer to the 52-week low of $25.40 than the high of $51.50. Headlines like this one focused on falling prices in the wake of the federal government’s lawsuit against mortgage giants. With market capitalization of $84.15 billion, a price to earnings ratio of 8.91, earnings per share of $3.24, and a dividend yield of 0.10 percent, C holds its own against the competition, like BAC mentioned above. There was no change in analyst opinion of C. We still think that, in the long run, this banking giant will lead the sector. With prices fluctuating near record lows, the time is right to consider adding it to your portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.