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 Thursday, January 12, 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.

Choiceone Financial Services Inc’s Value Grade

Value Grade:

ChoiceOne Financial Services, Inc. is a financial holding company for ChoiceOne Bank (the Bank). The Company's subsidiary, ChoiceOne Bank is a full-service banking institution that offers a range of deposit, payment, credit and other financial services to all types of customers. Its services include time, savings, demand deposits, safe deposit services and automated transaction machine services. It offers both commercial and consumer loans to corporations, partnerships and individuals. Commercial lending covers categories, such as business, industry, agricultural, construction, inventory and real estate. The Bank's consumer loan department makes direct and indirect loans to consumers and purchasers of residential and real property. The Bank's primary market area lies within Kent, Muskegon, Newaygo and Ottawa counties in western Michigan and Lapeer, Macomb, and St. Clair counties in southeastern Michigan. The Bank also offers trust and wealth management services.

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.

Choiceone Financial Services Inc has a Value Score of 83, which is considered to be undervalued.

When you look at Choiceone Financial Services Inc’s price-to-sales ratio at 2.96 compared to the industry median at 3.17, this company has a lower price relative to revenue compared to its peers. This could make Choiceone Financial Services Inc’s stock more attractive for value investors.

Choiceone Financial Services Inc’s price-earnings ratio is 9.62 compared to the industry median at 10.24. This means it has a lower share price relative to earnings compared to its peers. This could make Choiceone Financial Services Inc more attractive for value investors.

Now, let’s assess Choiceone Financial Services Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 3.6, when compared to the industry median of 6.8, the company may be considered undervalued 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. Choiceone Financial Services Inc’s shareholder yield is higher than its industry median ratio of 3.21%. 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. Choiceone Financial Services Inc’s price-to-book ratio is higher than its industry median ratio of 1.16. This could make Choiceone Financial Services Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Choiceone Financial Services Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Choiceone Financial Services Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 9.36. This could make Choiceone Financial Services Inc more attractive because the lower P/FCF ratio indicates that Choiceone Financial Services Inc 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.

Heartland Financial USA Inc’s Value Grade

Value Grade:

Heartland Financial USA, Inc. is a multi-bank holding company. It conducts a community banking business through approximately 11 independently branded and chartered community banks (the Banks). Its Banks provide a range of commercial, small business, and consumer banking services to businesses, including public sector and non-profit entities. It provides traditional and non-traditional service channels, including online banking, mobile banking, and telephone banking. Its Banks provide a suite of banking services comprised of deposit and credit offerings, with treasury management and retirement plan services. Its primary lines of business include commercial banking, small business banking, agricultural loans, residential real estate mortgage lending, retail banking and wealth management, investment and insurance, and retirement plan services. It serves communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas, and Wisconsin.

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.

Heartland Financial USA Inc has a Value Score of 74, which is considered to be undervalued.

Heartland Financial USA Inc’s price-earnings ratio is 10.3 compared to the industry median at 10.2. This means that it has a higher price relative to its earnings compared to its peers. This makes Heartland Financial USA Inc less attractive for value investors.

Heartland Financial USA Inc’s price-to-book ratio is lower than its peers. This could make Heartland Financial USA Inc more attractive for value investors when compared to the industry median at 1.16.

You can read more about Heartland Financial USA 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.

JPMorgan Chase & Co’s Value Grade

Value Grade:

JPMorgan Chase & Co. is a financial holding company engaged in investment banking, financial services and asset management. It operates in four segments, as well as a Corporate segment. The Company's segments are Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset Management. The Consumer & Community Banking segment offers services to consumers and businesses through bank branches, automatic teller machines, online, mobile and telephone banking. The Corporate & Investment Bank segment, comprising Banking and Markets and Investor Services, offers investment banking, market-making, prime brokerage, and treasury and securities products and services to corporations, investors, financial institutions, and government and municipal entities. The Commercial Banking segment provides financial solutions, including lending, treasury services, investment banking and asset management. The Asset Management segment comprises investment and wealth management.

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.

JPMorgan Chase & Co has a Value Score of 66, which is considered to be undervalued.

JPMorgan Chase & Co’s price-earnings ratio is 11.8 compared to the industry median at 10.2. This means that it has a higher price relative to its earnings compared to its peers. This makes JPMorgan Chase & Co less attractive for value investors.

JPMorgan Chase & Co’s price-to-book ratio is lower than its peers. This could make JPMorgan Chase & Co more attractive for value investors when compared to the industry median at 1.16.

You can read more about JPMorgan Chase & Co’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.

Merchants & Marine Bancorp Inc’s Value Grade

Value Grade:

Merchants & Marine Bancorp, Inc. is a holding company of Merchants & Marine Bank (the Bank). The Company’s principal activity is the ownership and management of the Bank. The Bank generates commercial, mortgage and consumer loans and receives deposits from customers located in Jackson, George, Lamar and Forrest Counties in Mississippi and Baldwin and Mobile Counties in Alabama. The Bank operates under a state bank charter and provides full banking services. Canvas Mortgage, a division of the Bank, originates mortgage loans for sale in the secondary market. Its portfolio of loans includes residential real estate, nonresidential real estate, consumer, commercial and other.

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.

Merchants & Marine Bancorp Inc has a Value Score of 66, which is considered to be undervalued.

Merchants & Marine Bancorp Inc’s price-earnings ratio is 27.2 compared to the industry median at 10.2. This means that it has a higher price relative to its earnings compared to its peers. This makes Merchants & Marine Bancorp Inc less attractive for value investors.

Merchants & Marine Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Merchants & Marine Bancorp Inc less attractive for value investors when compared to the industry median at 1.16.

You can read more about Merchants & Marine 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.

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.

• Choiceone Financial Services Inc stock has a Value Grade of A.
• Heartland Financial USA Inc stock has a Value Grade of B.
• JPMorgan Chase & Co stock has a Value Grade of B.
• Merchants & Marine Bancorp Inc stock has a Value Grade of B.

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 Thursday, January 12
• Is ANZ Group Holdings Ltd (ADR) (ANZGY) a Good Dividend Stock?
• Which Is a Better Investment, Ameris Bancorp or Axos Financial Inc Stock?
• Which Is a Better Investment, Ameris Bancorp or Banner Corp 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.