Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 11.7% gain has fallen behind the S&P 500’s 23.9% rise.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one bank stock boasting a durable advantage and two that may face trouble.
Two Bank Stocks to Sell:
Berkshire Hills Bancorp (BHLB)
Market Cap: $1.19 billion
Founded in 1846 as a community financial institution in Massachusetts, Berkshire Hills Bancorp (NYSE: BHLB) is a regional bank holding company that provides commercial banking, retail banking, wealth management, and lending services through branches across the Northeast.
Why Are We Cautious About BHLB?
- Annual net interest income growth of 2.3% over the last five years was below our standards for the banking sector
- Net interest margin dropped by 21 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 37.8% annually
Berkshire Hills Bancorp’s stock price of $26.13 implies a valuation ratio of 1.4x forward price-to-sales. To fully understand why you should be careful with BHLB, check out our full research report (it’s free for active Edge members).
Bank of America (BAC)
Market Cap: $385.3 billion
Tracing its roots back to 1784 and now serving approximately 67 million consumer and small business clients, Bank of America (NYSE: BAC) is a global financial institution that provides banking, investing, asset management, and risk management products and services to individuals, businesses, and governments.
Why Are We Wary of BAC?
- Sizable revenue base leads to growth challenges as its 3% annual revenue increases over the last two years fell short of other banking companies
- Sizable revenue base leads to growth challenges as its 6% annual net interest income increases over the last five years fell short of other banking companies
- Net interest margin of 2% reflects its high servicing and capital costs
Bank of America is trading at $52.84 per share, or 1.4x forward P/B. If you’re considering BAC for your portfolio, see our FREE research report to learn more.
One Bank Stock to Watch:
Customers Bancorp (CUBI)
Market Cap: $2.40 billion
Originally founded with a "high-tech, high-touch" branch-light banking strategy, Customers Bancorp (NYSE: CUBI) is a bank holding company that provides commercial and consumer banking services through its Customers Bank subsidiary, with a focus on business lending and digital banking.
Why Could CUBI Be a Winner?
- Impressive 14.2% annual net interest income growth over the last five years indicates it’s winning market share this cycle
- Additional sales over the last five years increased its profitability as the 19.5% annual growth in its earnings per share outpaced its revenue
- Impressive 18.1% annual tangible book value per share growth over the last five years indicates it’s building equity value this cycle
At $70.12 per share, Customers Bancorp trades at 1.2x forward P/B. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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