Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry has tumbled by 2.4%. This drawdown is a noticeable divergence from the S&P 500’s 14.3% return.
A cautious approach is imperative when dabbling in banks as many are sensitive to interest rate changes and economic cycles. With that said, here are three bank stocks best left ignored.
Wintrust Financial (WTFC)
Market Cap: $9.73 billion
Founded in 1991 as a community-focused alternative to big banks in the Chicago area, Wintrust Financial (NASDAQGS:WTFC) operates community banks in the Chicago area and provides specialty finance services including insurance premium financing and wealth management.
Why Do We Think Twice About WTFC?
- Net interest margin grew by 5.2 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more chips to play with
- Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 12.4%
Wintrust Financial’s stock price of $144.21 implies a valuation ratio of 1.3x forward P/B. If you’re considering WTFC for your portfolio, see our FREE research report to learn more.
Trustmark (TRMK)
Market Cap: $2.59 billion
Tracing its roots back to 1889 in Mississippi, Trustmark (NASDAQ: TRMK) is a financial services organization providing banking, wealth management, insurance, and mortgage services across five southeastern states.
Why Are We Wary of TRMK?
- Annual net interest income growth of 8.6% over the last five years was below our standards for the banking sector
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.9% annually
- Underwhelming 7.1% return on equity reflects management’s difficulties in finding profitable growth opportunities
Trustmark is trading at $44.55 per share, or 1.2x forward P/B. Read our free research report to see why you should think twice about including TRMK in your portfolio.
U.S. Bancorp (USB)
Market Cap: $88.86 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?
- Large revenue base makes it harder to expand quickly, and its annual net interest income growth of 6.4% over the last five years was below our standards for the banking sector
- Weak unit economics are reflected in its net interest margin of 2.7%, one of the worst among bank companies
- Incremental sales over the last five years were less profitable as its 1.6% annual earnings per share growth lagged its revenue gains
At $56.96 per share, U.S. Bancorp trades at 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than USB.
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