The 14 undervalued bank stocks we selected as good investment values in January are still up 9.92% after a rough month in which all the bank and major indices dropped significantly. In fact, the financial sector was the worst performing sector in the month of May.
Our portfolio was up 17.63% through April 24, but let's take a look at how the remaining undervalued banks in the portfolio have performed after the hit they took in May. Here they are relative to the market, peer group and industry benchmarks, as a four-month performance evaluation. See full original table in January article.
The value of the basket of 14 stocks is still up a respectable 9.92% in four months following a decline of 7.71% since April 24 and a decline of 9.95% since its peak on March 27. The 10-day average volume traded was also down by 12% from the three-month valuation and down 50% from peak 10-day volume in March.
Although this sector has given back some ground since the peak, the basket of 14 is still outperforming the banking sector indices and broader markets in general. The KBW Bank Index (BKX), a weighted index of 24 geographically diverse stocks representing national money centers and leading regional institutions, gained 3.57% for the same period (down by 11.1% from the March peak). The S&P Banking Index (BIX), a much broader banking index that includes all banks in the Standard & Poor's, gained 8.76% (down by 5% from the March peak). The overall market during this period, as measured by the S&P 500 and Dow lost 0.05% and 2.20%, respectively.
For the first time in the four-month period since this portfolio was created, four stocks are in the red, erasing all of their previous gains: Bank of America (BAC), Citigroup, Inc. (C), and KeyCorp (KEY). Parke Bancorp, Inc. (PFBK), was the only small-cap bank to post an overall loss. Performance was boosted by improvements in small-cap bank names such as 1st Constitution Bancorp (FCCY), Central Valley Community Bancorp (CVCY), Evans Bancorp, Inc. (EVBN), Fidelity Southern Corp. (LION) and Preferred Bank (PFBC). These banks all had gains from the previous month with Preferred Bank showing the highest four-month overall gain of 50.50%. SunTrust Banks, Inc. (STI) has the largest gain of almost 10% of all the large-cap bank names in the portfolio.
Five of the 14 stocks (highlighted in green) are still above their price target in the last four months. While only three (highlighted in yellow) are at or above their book value. Although this means that they are fully valued and less desirable of a buying opportunity, unless their stock price falls back, there are plenty of the other values remaining.
Some of the best values still remaining are Parke Bancorp (PKBK), Intervest Bancshares (IBCA) and Citigroup , which are only at 34%, 69% and 56% of their price targets, respectively. The current average stock price in the portfolio is at 81% of the group's aggregate price target (down from 87%, last month). So, there is still plenty of room for price appreciation in the portfolio going forward-even more so, if you consider the group's aggregate price-to-book ratio is only at 76%.