Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry’s 4.2% return has trailed the S&P 500 by 2.4 percentage points.
Investors should tread carefully as many of these banks are also cyclical, and any misstep can have you catching a falling knife. With that said, here are three bank stocks best left ignored.
M&T Bank (MTB)
Market Cap: $33.16 billion
Tracing its roots back to 1856 when it was founded as Manufacturers and Traders Bank in Buffalo, New York, M&T Bank (NYSE: MTB) is a regional bank holding company that provides retail and commercial banking, trust, wealth management, and investment services to consumers and businesses.
Why Does MTB Worry Us?
- Muted 1.4% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.2% annually
- Estimated tangible book value per share growth of 4.1% for the next 12 months implies profitability will slow from its two-year trend
M&T Bank’s stock price of $222.58 implies a valuation ratio of 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than MTB.
City Holding (CHCO)
Market Cap: $1.76 billion
With roots dating back to 1957 and a strategic presence along the I-64 and I-81 corridors, City Holding (NASDAQGS:CHCO) operates as a financial holding company providing banking, trust, and investment services through its subsidiary City National Bank across West Virginia, Kentucky, Virginia, and Ohio.
Why Are We Hesitant About CHCO?
- 8.9% annual net interest income growth over the last five years was slower than its banking peers
- Estimated net interest income growth of 3.5% for the next 12 months implies demand will slow from its five-year trend
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.6% annually
At $122.69 per share, City Holding trades at 2x forward P/B. To fully understand why you should be careful with CHCO, check out our full research report (it’s free).
U.S. Bancorp (USB)
Market Cap: $87.08 billion
With roots dating back to 1863 and a presence across 26 states primarily in the Midwest and West, U.S. Bancorp (NYSE: USB) is one of America's largest banks providing lending, deposit services, wealth management, payment processing, and merchant services to individuals and businesses.
Why Does USB Give Us Pause?
- The company has faced growth challenges as its 5.4% annual net interest income increases over the last five years fell short of other banking companies
- Weak unit economics are reflected in its net interest margin of 2.7%, one of the worst among bank companies
- Scale is a double-edged sword because it limits the firm’s capital growth potential compared to its smaller competitors, as reflected in its below-average annual tangible book value per share increases of 3.1% for the last five years
U.S. Bancorp is trading at $55.86 per share, or 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than USB.
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