As someone that regularly writes about the banking industry, I am always trying to find a new way to compare banks of differing sizes to each other. After all, the operations of banks like Bank of America are vastly different from much smaller banks like Synovus Financial .
Luckily, there are certain metrics that can be examined that help to differentiate between multiple banks. Valuation doesn't tell the entire story because a cheap stock may be cheap for very good reason. However, valuation is a very important part of the investing process and can often reveal stocks that are ripe for the picking.
After examining some lesser-known small banks last week, I am turning my attention to the big boys, or banks that exceed $2 billion in market cap. I have also eliminated the handful of banks with negative earnings during the past 12 months, and was left with a list of 39 banks. Unlike last week, with the possible exception of one surprise entrant, the five banks profiled here are pretty well known.
With earnings right around the corner, this list could look very different a month from now. In the meantime, these are the top five that made the cut:
Source: Finviz.com and Motley Fool CAPS; total assets as of quarter ending September 2012
The appearance of JPMorgan was slightly unexpected, primarily because of its size relative the others on this list, but this is a very unique group of banks to be sure. All five trade at a discount to book value, and all have a P/E under 15. Let's take a quick look at each of the banks to see if we can identify which one offers the best value.
SunTrust took a slight beating after some disappointing results last quarter, but has since rebounded nicely, recovering to within 6% of its 52-week high. As with most banks of its size, it is required to take part in the Federal Reserve stress tests every year. Last year, the bank didn't fare as well as some of its competitors, so it's hoping that the upcoming 2013 tests present a rosier outlook for the Atlanta-based bank.
Despite its size, JPMorgan proves that big banks can be cheap, even if you are unsure where all the money is coming from. It was among the best performing banks of 2012, and while this year is not off to a smashing start, they are still led by the dynamic Jamie Dimon and his impeccable hair. The bank also boasts the highest yield of the banks on the list, a dividend that has room to grow should the Fed allow.
KeyCorp is among many banks returning to lending to increase profits. While nowhere near the levels experienced prior to the 2008 fiscal crisis, it was a strong driver in growth during 2012, and it also helped the bank improve its asset quality through the end of the last quarter. It was busy on the acquisition front last year as well, purchasing a number of branches from both HSBC and First Niagara Financial Group, adding to its growing balance sheet. It is now on the bank to show that it can monetize these new assets.
Being the largest bank in Puerto Rico doesn't mean much when compared to the others on this list, as Popular barely made the $2 billion threshold. Nevertheless, it is an interesting bank. As you can see from the chart, it is trading at nearly half its book value, making it by far the cheapest bank according to that metric. However, it also has the highest P/E of those on the list and is the only one that doesn't pay a dividend. There is still some time to keep an eye on Popular before buying, but it is still an intriguing option.
If you were to rank regional banks by popularity, Huntington would probably trail only US Bancorp . A lot of investors like the bank for various reasons: it always seems to be trading at right around book value, it boasts a relatively low P/E, and its currently average dividend yield seems to have some room to grow. I recently predicted that Huntington was poised to grow through acquisition this year, especially after it missed out on acquiring Citizens Republic.
My choice is...
While all the banks on this list could be considered "cheap," the one that I consider the best buy opportunity is JPMorgan Chase. Its stellar performance even in light of its troubles during 2012 places it in a position it to continue this strong performance going forward, though Huntington Bancshares came in a close second.
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The article 1 Ultra-Cheap Big Bank You Can Buy Right Now originally appeared on Fool.com.
Robert Eberhard has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America, Huntington Bancshares, JPMorgan Chase, and KeyCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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