Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 6 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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6 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 6 undervalued stocks in the Banks industry for Tuesday, January 31, 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.

Sierra Bancorp’s Value Grade

Value Grade:

Sierra Bancorp is a bank holding company for Bank of the Sierra (the Bank). The Bank is a California state-chartered bank, which offers a range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, and neighboring communities. It provides an Internet branch which provides the ability to open deposit accounts online; an online banking option with bill-pay and mobile banking capabilities; online lending solutions for consumers and small businesses; a customer service center, and an automated telephone banking system. Its lending activities cover real estate, commercial (including small businesses), mortgage warehouse, agricultural, and consumer loans. In addition to loans, it offers a range of deposit products and services for individuals and businesses, including checking accounts, savings accounts, money market demand accounts, time deposits, retirement accounts, and sweep accounts.

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.

Sierra Bancorp has a Value Score of 83, which is considered to be undervalued.

When you look at Sierra Bancorp’s price-to-sales ratio at 2.79 compared to the industry median at 3.00, this company has a lower price relative to revenue compared to its peers. This could make Sierra Bancorp’s stock more attractive for value investors.

Sierra Bancorp’s price-earnings ratio is 8.91 compared to the industry median at 10.12. This means it has a lower share price relative to earnings compared to its peers. This could make Sierra Bancorp more attractive for value investors.

Now, let’s assess Sierra Bancorp’s EV/EBITDA ratio, also known as enterprise multiple. At 5.3, when compared to the industry median of 7.1, 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. Sierra Bancorp’s shareholder yield is higher than its industry median ratio of 3.27%. 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. Sierra Bancorp’s price-to-book ratio is lower than its industry median ratio of 1.15. This could make Sierra Bancorp more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Sierra Bancorp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Sierra Bancorp’s price-to-free-cash-flow ratio is higher than its industry median ratio of 10.18. This could make Sierra Bancorp less attractive because the higher P/FCF ratio indicates that Sierra 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.

First Northern Community Bancorp’s Value Grade

Value Grade:

First Northern Community Bancorp is a bank holding company. It specializes in relationship banking. The Bank is engaged in the commercial banking business and provides a range of products and services to small- and medium-sized businesses and individuals, including accepting demand, interest bearing transaction, savings, and time deposits, and making commercial, consumer and real estate related loans. It also issues cashiers checks, rents safe deposit boxes, and provides other customary banking services. It has approximately 14 branches, including Dixon, Davis, West Sacramento, Fairfield, Vacaville, Winters, Woodland, Sacramento, Roseville, Auburn, Rancho Cordova, Colusa, Willows, and Orland. It offers paycheck protection program, commercial real estate loans, business term loans, business line of credit, lightning loans, and small business loans (SBA). It also provides business online banking and bill pay, business mobile banking, remote deposit capture, and merchant 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.

First Northern Community Bancorp has a Value Score of 84, which is considered to be undervalued.

First Northern Community Bancorp’s price-earnings ratio is 8.3 compared to the industry median at 10.1. This means that it has a lower price relative to its earnings compared to its peers. This makes First Northern Community Bancorp more attractive for value investors.

First Northern Community Bancorp’s price-to-book ratio is higher than its peers. This could make First Northern Community Bancorp less attractive for value investors when compared to the industry median at 1.15.

You can read more about First Northern Community Bancorp’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.

OceanFirst Financial Corp.’s Value Grade

Value Grade:

OceanFirst Financial Corp. is a holding company for OceanFirst Bank N.A. (the Bank). The Bank is a full-service regional bank delivering financial products and services, which include commercial and consumer financing, deposit services, and wealth management products and services, throughout New Jersey and the major metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston. The Bank's commercial loans include multi-family and commercial real estate loans, commercial construction loans, and commercial and industrial loans. The Bank also offers investment products for sale through its retail branch network. The Bank is focused on growth opportunities in areas, including derivative contracts, trust and asset management, digital product offerings, and equity investments in non-bank finance companies. It operates approximately 46 branch offices, and four deposit production facilities located throughout New Jersey, New York City and Philadelphia.

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.

OceanFirst Financial Corp. has a Value Score of 76, which is considered to be undervalued.

OceanFirst Financial Corp.’s price-earnings ratio is 9.6 compared to the industry median at 10.1. This means that it has a lower price relative to its earnings compared to its peers. This makes OceanFirst Financial Corp. more attractive for value investors.

OceanFirst Financial Corp.’s price-to-book ratio is higher than its peers. This could make OceanFirst Financial Corp. less attractive for value investors when compared to the industry median at 1.15.

You can read more about OceanFirst Financial Corp.’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.

PCB Bancorp’s Value Grade

Value Grade:

PCB Bancorp is a bank holding company for Pacific City Bank (the Bank). The Bank offers a range of online banking solutions that includes access to account balances, online transfers, online bill payment and electronic delivery of customer statements, mobile banking solutions, including remote check deposit and mobile bill pay. The Bank a offers automated teller machines and banking by telephone, mail, personal appointment, debit cards, direct deposit, cashier’s checks, as well as treasury management, wire transfer and automated clearing house services. The Banks business activities include Lending Activities portfolio consists of real estate loans, commercial and industrial loans and other consumer loans; Investment securities portfolio includes small business administration loan pools securities, mortgage-backed securities and collateralized mortgage obligations, and Deposits Activities offers a range of deposit accounts, including demand, savings, money market and time deposits.

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.

PCB Bancorp has a Value Score of 78, which is considered to be undervalued.

PCB Bancorp’s price-earnings ratio is 6.8 compared to the industry median at 10.1. This means that it has a lower price relative to its earnings compared to its peers. This makes PCB Bancorp more attractive for value investors.

PCB Bancorp’s price-to-book ratio is higher than its peers. This could make PCB Bancorp less attractive for value investors when compared to the industry median at 1.15.

You can read more about PCB Bancorp’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.

Community Financial Corp(Maryland)’s Value Grade

Value Grade:

The Community Financial Corporation is a bank holding company for Community Bank of the Chesapeake (the Bank). The Bank is engaged in the commercial and retail banking business, including the acceptance of deposits and the origination of loans to small and medium sized commercial businesses as well as local municipal agencies and not-for-profits. Its primary deposit products are demand, savings and time deposits, and its lending products are commercial real estate loans, loans secured by residential rental property, construction loans, land acquisition and development loans, equipment financing, commercial and consumer loans. The Bank operates approximately 11 branches located in Maryland and Virginia. The Bank maintains over four loan production offices (LPOs) in La Plata, Prince Frederick and Leonardtown, Maryland, and Fredericksburg, Virginia. The Bank also serve its customers through its Website: www.cbtc.com.

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.

Community Financial Corp(Maryland) has a Value Score of 79, which is considered to be undervalued.

Community Financial Corp(Maryland)’s price-earnings ratio is 8.3 compared to the industry median at 10.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Community Financial Corp(Maryland) more attractive for value investors.

Community Financial Corp(Maryland)’s price-to-book ratio is lower than its peers. This could make Community Financial Corp(Maryland) more attractive for value investors when compared to the industry median at 1.15.

You can read more about Community Financial Corp(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.

Uwharrie Capital Corp’s Value Grade

Value Grade:

Uwharrie Capital Corp is a bank holding company for Uwharrie Bank (the Bank), a North Carolina commercial bank. The Bank's operation primarily retail-oriented and directed to individuals and small to medium-sized businesses. The Bank provides commercial and consumer banking services, including personal and commercial checking and savings accounts, money market accounts, certificates of deposit, individual retirement accounts, and related business and individual banking services. The Bank’s lending activities include commercial loans and various consumer-type loans to individuals, including installment loans, mortgage loans, equity lines of credit and overdraft checking credit. The Bank also offers Internet banking, mobile banking, telephone banking and issues Visa check cards. The Bank subsidiaries include The Strategic Alliance Corporation (Strategic Alliance), BOS Agency, Inc. (BOS Agency) and Gateway Mortgage, Inc.

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.

Uwharrie Capital Corp has a Value Score of 80, which is considered to be undervalued.

Uwharrie Capital Corp’s price-earnings ratio is 8.5 compared to the industry median at 10.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Uwharrie Capital Corp more attractive for value investors.

Uwharrie Capital Corp’s price-to-book ratio is lower than its peers. This could make Uwharrie Capital Corp more attractive for value investors when compared to the industry median at 1.15.

You can read more about Uwharrie Capital Corp’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 6 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.

• Sierra Bancorp stock has a Value Grade of A.
• First Northern Community Bancorp stock has a Value Grade of A.
• OceanFirst Financial Corp. stock has a Value Grade of B.
• PCB Bancorp stock has a Value Grade of B.
• Community Financial Corp(Maryland) stock has a Value Grade of B.
• Uwharrie Capital Corp stock has a Value Grade of B.

Now that you have a bit more background about each of the 6 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.

• 3 Undervalued Banks Stocks for Tuesday, January 31
• Which Is a Better Investment, Atlantic Union Bankshares Corp or Hilltop Holdings Inc. Stock?
• Which Is a Better Investment, Banco Macro SA (ADR) or Hilltop Holdings Inc. Stock?
• Which Is a Better Investment, Banco Macro SA (ADR) or Seacoast Banking Corporation of Florida Stock?

AAII Disclaimer

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