Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 4 stocks made the list for top value stocks in the Banks industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Why Focus on Undervalued Banks Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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4 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 4 undervalued stocks in the Banks industry for Tuesday, December 19, 2023. Let’s take a closer look at their individual scores to see how they measure up against each other and the Banks industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Fifth Third Bancorp’s Value Grade

Value Grade:

Fifth Third Bancorp (the Bancorp) is a bank holding company for Fifth Third Bank, National Association. The Bancorp conducts its principal lending, deposit gathering, transaction processing and service advisory activities through its banking and non-banking subsidiaries from banking centers located throughout the Midwestern and Southeastern regions of the United States. The Bancorp operates through three segments: Commercial Banking, which offers credit intermediation, cash management and financial services to large and middle-market businesses and government and professional customers; Consumer and Small Business Banking provides a full range of deposit and loan products to individuals and small businesses through a network of full-service banking centers and relationships with indirect and correspondent loan originators, and Wealth and Asset Management, which provides a range of wealth management services for individuals, companies and nonprofit organizations.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Fifth Third Bancorp has a Value Score of 71, which is considered to be undervalued.

When you look at Fifth Third Bancorp’s price-to-sales ratio at 2.61 compared to the industry median at 2.10, this company has a higher price relative to revenue compared to its peers. This could make Fifth Third Bancorp’s stock less attractive for value investors.

Fifth Third Bancorp’s price-earnings ratio is 9.99 compared to the industry median at 9.50. This means it has a higher share price relative to earnings compared to its peers. This could make Fifth Third Bancorp less attractive for value investors.

Now, let’s assess Fifth Third Bancorp’s EV/EBITDA ratio, also known as enterprise multiple. At 7.1, when compared to the industry median of 5.1, the company may be considered overvalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Fifth Third Bancorp’s shareholder yield is higher than its industry median ratio of 3.48%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Fifth Third Bancorp’s price-to-book ratio is higher than its industry median ratio of 1.01. This could make Fifth Third Bancorp less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Fifth Third Bancorp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Fifth Third Bancorp’s price-to-free-cash-flow ratio is lower than its industry median ratio of 10.39. This could make Fifth Third Bancorp more attractive because the lower P/FCF ratio indicates that Fifth Third Bancorp is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Landmark Bancorp Inc’s Value Grade

Value Grade:

Landmark Bancorp, Inc. is a financial holding company. The Company?s business consists of the ownership of Landmark National Bank (the Bank) and Landmark Risk Management, Inc., which are wholly owned subsidiaries of the Company. The Bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture, municipal and consumer loans. The Bank also invests in certain investment and mortgage-related securities using deposits and other borrowings as funding sources. The Bank provides a full range of financial products and services to small- and medium-sized businesses and to consumers in each market area it serves. Landmark Risk Management, Inc. is a captive insurance company, which provides property and casualty insurance coverage to the Company and the Bank.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Landmark Bancorp Inc has a Value Score of 90, which is considered to be undervalued.

Landmark Bancorp Inc’s price-earnings ratio is 9.8 compared to the industry median at 9.5. This means that it has a higher price relative to its earnings compared to its peers. This makes Landmark Bancorp Inc less attractive for value investors.

Landmark Bancorp Inc’s price-to-book ratio is lower than its peers. This could make Landmark Bancorp Inc fairly attractive for value investors when compared to the industry median at 1.01.

You can read more about Landmark Bancorp Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

PNC Financial Services Group Inc’s Value Grade

Value Grade:

The PNC Financial Services Group, Inc. is a diversified financial services company. The Company has businesses engaged in retail banking, including residential mortgage, corporate and institutional banking, and asset management. Its retail branch network is located coast-to-coast. The Company's segments include Retail Banking, Corporate & Institutional Banking and Asset Management Group. The Company?s Retail Banking segment provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business customers. The Corporate & Institutional Banking segment provides lending, treasury management, capital markets and advisory products and services to mid-sized and large corporations, and government and not-for-profit entities. The Company?s Asset Management Group segment provides private banking for high net worth and ultra-high net worth clients and institutional asset management. Its bank subsidiary is PNC Bank.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

PNC Financial Services Group Inc has a Value Score of 76, which is considered to be undervalued.

PNC Financial Services Group Inc’s price-earnings ratio is 10.5 compared to the industry median at 9.5. This means that it has a higher price relative to its earnings compared to its peers. This makes PNC Financial Services Group Inc less attractive for value investors.

PNC Financial Services Group Inc’s price-to-book ratio is lower than its peers. This could make PNC Financial Services Group Inc more attractive for value investors when compared to the industry median at 1.01.

You can read more about PNC Financial Services Group Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

PSB Holdings Inc (Wisconsin)’s Value Grade

Value Grade:

PSB Holdings, Inc. is a holding company for Peoples State Bank (Peoples). Peoples is a community bank, which serves north central and southeastern Wisconsin with 10 full-service banking locations in Marathon, Oneida, Vilas, Milwaukee and Waukesha counties and a loan production office in Stevens Point, Wisconsin. Peoples also provides investment and insurance products, along with retirement planning services, through Peoples Wealth Management, a division of Peoples. Its commercial and industrial loans, municipal loans and agricultural loans are primarily for working capital, physical asset expansion and asset acquisition loans. Its commercial real estate loans are primarily secured by owner and non-owner-occupied office and industrial buildings, warehouses, small retail shopping facilities and various special purpose properties, including hotels and restaurants. Its construction and land development loans are secured by vacant land and/or property that is in the process of improvement.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

PSB Holdings Inc (Wisconsin) has a Value Score of 91, which is considered to be undervalued.

PSB Holdings Inc (Wisconsin)’s price-earnings ratio is 9.3 compared to the industry median at 9.5. This means that it has a lower price relative to its earnings compared to its peers. This makes PSB Holdings Inc (Wisconsin) more attractive for value investors.

PSB Holdings Inc (Wisconsin)’s price-to-book ratio is lower than its peers. This could make PSB Holdings Inc (Wisconsin) fairly attractive for value investors when compared to the industry median at 1.01.

You can read more about PSB Holdings Inc (Wisconsin)’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Banks Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Banks stocks as well as other industrys.

Choosing Which of the 4 Best Banks Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Fifth Third Bancorp stock has a Value Grade of B.
• Landmark Bancorp Inc stock has a Value Grade of A.
• PNC Financial Services Group Inc stock has a Value Grade of B.
• PSB Holdings Inc (Wisconsin) stock has a Value Grade of A.

Now that you have a bit more background about each of the 4 undervalued stocks in the Banks industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Banks Stocks

Want to learn more about Banks stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 4 Undervalued Banks Stocks for Tuesday, December 19
• What You Need to Know About 1st Source Corp's Q3 Earnings
• What You Need to Know About Alerus Financial Corp's Q3 Earnings
• What You Need to Know About Amalgamated Bank's Q3 Earnings

AAII Disclaimer

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