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 9.8% gain has fallen behind the S&P 500’s 11.7% rise.
Investors should tread carefully as many of these banks are also cyclical, and any misstep can have you catching a falling knife. Keeping that in mind, here are three bank stocks best left ignored.
United Bankshares (UBSI)
Market Cap: $6.47 billion
With roots dating back to 1982 and a strong presence in the Mid-Atlantic region, United Bankshares (NASDAQ: UBSI) is a bank holding company that provides commercial and retail banking services through its United Bank subsidiary across multiple states.
Why Do We Pass on UBSI?
- 8.5% annual net interest income growth over the last five years was slower than its banking peers
- Estimated net interest income growth of 4% for the next 12 months implies demand will slow from its five-year trend
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.2% annually
United Bankshares is trading at $47.59 per share, or 1.1x forward P/B. To fully understand why you should be careful with UBSI, check out our full research report (it’s free).
City Holding (CHCO)
Market Cap: $2.04 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 Wary of CHCO?
- Annual net interest income growth of 9.8% over the last five years was below our standards for the banking sector
- Estimated net interest income growth of 3.2% for the next 12 months implies demand will slow from its five-year trend
- Earnings per share lagged its peers over the last two years as they only grew by 8.6% annually
City Holding’s stock price of $145.33 implies a valuation ratio of 2.4x forward P/B. If you’re considering CHCO for your portfolio, see our FREE research report to learn more.
Franklin BSP Realty Trust (FBRT)
Market Cap: $708.4 million
Operating as a specialized real estate investment trust (REIT) with roots dating back to 2012, Franklin BSP Realty Trust (NYSE: FBRT) originates and manages a diversified portfolio of commercial real estate debt investments secured by properties in the United States and abroad.
Why Are We Out on FBRT?
- Customers borrowed less money this cycle as its net interest income declined by 2.3% annually over the last five years
- Earnings per share have dipped by 28.6% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- Underwhelming 4.2% return on equity reflects management’s difficulties in finding profitable growth opportunities
At $8.54 per share, Franklin BSP Realty Trust trades at 0.6x forward P/B. Dive into our free research report to see why there are better opportunities than FBRT.
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