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, February 20, 2024. 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.

Alerus Financial Corp’s Value Grade

Value Grade:

Alerus Financial Corporation is a diversified financial services company. Through its subsidiary, Alerus Financial, National Association (the Bank), the Company provides financial solutions to businesses and consumers. It operates through four segments: Banking, Retirement and Benefit Services, Wealth Management, and Mortgage. The Banking segment offers a complete line of loan, deposit, cash management, and treasury services. The Retirement and Benefit Services segment provides various services, including recordkeeping and administration services to qualified retirement plans; ESOP trustee, recordkeeping and administration; and investment fiduciary services to retirement plans, among others. The Wealth Management segment provides advisory and planning services, investment management, and trust and fiduciary services. The Mortgage segment offers first and second mortgage loans through a centralized mortgage unit in Minneapolis, Minnesota, as well as through the banking office locations.

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.

Alerus Financial Corp has a Value Score of 72, which is considered to be undervalued.

When you look at Alerus Financial Corp’s price-to-sales ratio at 2.91 compared to the industry median at 1.95, this company has a higher price relative to revenue compared to its peers. This could make Alerus Financial Corp’s stock less attractive for value investors.

Alerus Financial Corp’s price-earnings ratio is 12.46 compared to the industry median at 9.90. This means it has a higher share price relative to earnings compared to its peers. This could make Alerus Financial Corp less attractive for value investors.

Now, let’s assess Alerus Financial Corp’s EV/EBITDA ratio, also known as enterprise multiple. At 6.2, when compared to the industry median of 6.2, 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. Alerus Financial Corp’s shareholder yield is higher than its industry median ratio of 3.56%. 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. Alerus Financial Corp’s price-to-book ratio is higher than its industry median ratio of 0.99. This could make Alerus Financial Corp less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Alerus Financial Corp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Alerus Financial Corp’s price-to-free-cash-flow ratio is lower than its industry median ratio of 9.82. This could make Alerus Financial Corp more attractive because the lower P/FCF ratio indicates that Alerus Financial Corp 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.

Customers Bancorp Inc’s Value Grade

Value Grade:

Customers Bancorp, Inc. is a bank holding company. It is engaged in banking activities through its subsidiary, Customers Bank (the Bank). The Bank serves residents and businesses in Southeastern Pennsylvania, New York, New Jersey, New York City, New England and other geographies, multifamily lending, small business administration lending and residential mortgage lending. The Bank has seven full-service branches and provides commercial banking products, primarily loans and deposits. The Bank administratively supports loans and other financial products, including equipment finance leases, to customers. It also offers venture banking loan portfolios. The Bank serves specialty niche businesses nationwide, including its commercial loans to mortgage companies, commercial equipment financing, SBA lending, specialty lending and consumer loans through relationships with fintech companies. Its Specialty Banking includes lending to mortgage companies, equipment finance, and warehouse lending.

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.

Customers Bancorp Inc has a Value Score of 92, which is considered to be undervalued.

Customers Bancorp Inc’s price-earnings ratio is 7.3 compared to the industry median at 9.9. This means that it has a lower price relative to its earnings compared to its peers. This makes Customers Bancorp Inc more attractive for value investors.

Customers Bancorp Inc’s price-to-book ratio is lower than its peers. This could make Customers Bancorp Inc more attractive for value investors when compared to the industry median at 0.99.

You can read more about Customers 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.

Mizuho Financial Group Inc (ADR)’s Value Grade

Value Grade:

Mizuho Financial Group Inc is a Japan-based bank holding company mainly engaged in the business of bank holding companies, banks, securities specialist companies and other companies. The Company operates through five business segments. The Retail and Corporate Company segment operates for domestic individuals, small and medium enterprises and mid-sized customers. The Large Corporate, Financial and Public Corporation Company segment operates for clients of large corporate corporations, financial corporations and public corporations in Japan. The Global Corporate Company segment operates for clients of overseas-affiliated Japanese companies and non-Japanese companies. The Global Markets Company segment is engaged in investment business in interest rates, equity, among others. The Asset Management Company segment is engaged in the development and provision of products that meet the asset management needs of clients from individuals to institutional investors.

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.

Mizuho Financial Group Inc (ADR) has a Value Score of 86, which is considered to be undervalued.

Mizuho Financial Group Inc (ADR)’s price-earnings ratio is 10.3 compared to the industry median at 9.9. This means that it has a higher price relative to its earnings compared to its peers. This makes Mizuho Financial Group Inc (ADR) less attractive for value investors.

Mizuho Financial Group Inc (ADR)’s price-to-book ratio is higher than its peers. This could make Mizuho Financial Group Inc (ADR) less attractive for value investors when compared to the industry median at 0.99.

You can read more about Mizuho Financial Group Inc (ADR)’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.

Pathfinder Bancorp Inc (MARYLAND)’s Value Grade

Value Grade:

Pathfinder Bancorp, Inc. is a holding company, which operates through its subsidiary Pathfinder Bank (the Bank). The Bank is primarily engaged in the business of attracting deposits from the public, and investing such deposits, in loans secured by commercial and residential real estate, and commercial business and consumer assets other than real estate. The Company also invests in mortgage-backed securities issued or guaranteed by United States Government sponsored enterprises, collateralized mortgage obligations and similar debt securities issued by both government sponsored entities and private (non-governmental) issuers, and asset-backed securities that are generally issued by private entities. Its loan portfolio includes municipal loans, home equity loans and lines and consumer loans. The Company operates over seven branch offices located in Oswego County, four branch offices in Onondaga County, and one limited purpose office in Oneida County.

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.

Pathfinder Bancorp Inc (MARYLAND) has a Value Score of 93, which is considered to be undervalued.

Pathfinder Bancorp Inc (MARYLAND)’s price-earnings ratio is 8.8 compared to the industry median at 9.9. This means that it has a lower price relative to its earnings compared to its peers. This makes Pathfinder Bancorp Inc (MARYLAND) more attractive for value investors.

Pathfinder Bancorp Inc (MARYLAND)’s price-to-book ratio is higher than its peers. This could make Pathfinder Bancorp Inc (MARYLAND) less attractive for value investors when compared to the industry median at 0.99.

You can read more about Pathfinder Bancorp Inc (MARYLAND)’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.

• Alerus Financial Corp stock has a Value Grade of B.
• Customers Bancorp Inc stock has a Value Grade of A.
• Mizuho Financial Group Inc (ADR) stock has a Value Grade of A.
• Pathfinder Bancorp Inc (MARYLAND) 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.

• 5 Undervalued Banks Stocks for Tuesday, February 20
• 4 Undervalued Banks Stocks for Monday, February 19
• Which Is a Better Investment, Banco Bilbao Vizcaya Argentaria SA (ADR) or Natwest Group PLC - ADR Stock?
• Which Is a Better Investment, Banco de Chile (ADR) or Natwest Group PLC - ADR Stock?

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.