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 Thursday, February 09, 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.

Ames National Corporation’s Value Grade

Value Grade:

Ames National Corporation is a bank holding company. The Company owns and operates banking subsidiaries in central Iowa (the Banks), including First National Bank, Ames; Boone Bank & Trust Co., Boone; Iowa State Savings Bank, Creston; State Bank & Trust Co., Nevada; Reliance State Bank, Story City, and United Bank & Trust NA, Marshalltown. The Bank's lending activities consist of short-term and medium-term commercial and agricultural real estate loans, residential real estate loans, agricultural and business operating loans and lines of credit, equipment loans, vehicle loans, personal loans and lines of credit, and home improvement loans and origination of mortgage loans. It also offer a variety of checking, savings, and time deposits, cash management services, merchant credit card processing, safe deposit boxes, wire transfers, direct deposit and automated/video teller machine access. Five of the six subsidiary Banks offer trust services, which include 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.

Ames National Corporation has a Value Score of 65, which is considered to be undervalued.

When you look at Ames National Corporation’s price-to-sales ratio at 3.56 compared to the industry median at 3.07, this company has a higher price relative to revenue compared to its peers. This could make Ames National Corporation’s stock less attractive for value investors.

Ames National Corporation’s price-earnings ratio is 11.41 compared to the industry median at 10.35. This means it has a higher share price relative to earnings compared to its peers. This could make Ames National Corporation less attractive for value investors.

Now, let’s assess Ames National Corporation’s EV/EBITDA ratio, also known as enterprise multiple. At 6.3, when compared to the industry median of 7.2, 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. Ames National Corporation’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. Ames National Corporation’s price-to-book ratio is higher than its industry median ratio of 1.20. This could make Ames National Corporation less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Ames National Corporation’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Ames National Corporation’s price-to-free-cash-flow ratio is higher than its industry median ratio of 10.12. This could make Ames National Corporation less attractive because the higher P/FCF ratio indicates that Ames National Corporation 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.

Banco Santander Brasil SA (ADR)’s Value Grade

Value Grade:

Banco Santander Brasil SA is a Brazil-based bank. The Bank operates through two segments: Retail and Wholesale. The Retail segment provides financial services to individuals, as well as to small and medium-sized enterprises. The Wholesale segment focuses on large corporations and capital markets. Together with its subsidiaries, the Bank offers a range of financial services, including consumer, commercial and investment banking services, lending and financing, mortgage lending, leasing, credit card operations and foreign exchange. The Bank is also engaged in the asset management, capitalization, securities brokerage, insurance brokerage and pension plans operations. The Company has a number of subsidiaries, such as Santander Corretora de Cambio e Valores Mobiliarios SA, Banco Bandepe SA and Sancap Investimentos e Participacoes SA, among others.

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.

Banco Santander Brasil SA (ADR) has a Value Score of 64, which is considered to be undervalued.

Banco Santander Brasil SA (ADR)’s price-earnings ratio is 14.4 compared to the industry median at 10.4. This means that it has a higher price relative to its earnings compared to its peers. This makes Banco Santander Brasil SA (ADR) less attractive for value investors.

Banco Santander Brasil SA (ADR)’s price-to-book ratio is lower than its peers. This could make Banco Santander Brasil SA (ADR) more attractive for value investors when compared to the industry median at 1.20.

You can read more about Banco Santander Brasil SA (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.

Midland States Bancorp Inc’s Value Grade

Value Grade:

Midland States Bancorp, Inc. is a diversified financial holding company. The Company, through its subsidiary, Midland States Bank (the Bank), is engaged in providing a range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management, and insurance and financial planning services. The Bank's products and services include commercial loans, commercial real estate loans, construction and land development loans, residential real estate loans, consumer installment loans, commercial equipment leasing, deposit taking and wealth management. Commercial real estate loan offers real estate loans for owner occupied and non-owner occupied commercial property. Construction portfolio includes loans to small and midsized businesses to construct owner-user properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual.

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.

Midland States Bancorp Inc has a Value Score of 93, which is considered to be undervalued.

Midland States Bancorp Inc’s price-earnings ratio is 7.0 compared to the industry median at 10.4. This means that it has a lower price relative to its earnings compared to its peers. This makes Midland States Bancorp Inc more attractive for value investors.

Midland States Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Midland States Bancorp Inc less attractive for value investors when compared to the industry median at 1.20.

You can read more about Midland States 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.

Sound Financial Bancorp Inc’s Value Grade

Value Grade:

Sound Financial Bancorp, Inc. is a bank holding company of Sound Community Bank, which is a commercial bank. Its principal business includes attracting retail and commercial deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences, including home equity loans and lines of credit; commercial and multifamily real estate; construction; and land, consumer and commercial business loans. Its commercial business loans include unsecured lines of credit and secured term loans and lines of credit secured by inventory, equipment and accounts receivable. It also offers a variety of secured and unsecured consumer loan products, including manufactured home loans, floating home loans, automobile loans, boat loans and recreational vehicle loans. The Company focuses on residential mortgage loan originations, which sales to the Federal National Mortgage Association and other correspondents.

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.

Sound Financial Bancorp Inc has a Value Score of 77, which is considered to be undervalued.

Sound Financial Bancorp Inc’s price-earnings ratio is 11.8 compared to the industry median at 10.4. This means that it has a higher price relative to its earnings compared to its peers. This makes Sound Financial Bancorp Inc less attractive for value investors.

Sound Financial Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Sound Financial Bancorp Inc less attractive for value investors when compared to the industry median at 1.20.

You can read more about Sound Financial 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.

United Bancshares Inc. OH’s Value Grade

Value Grade:

United Bancshares, Inc. is a financial holding company. The Company operates through its subsidiary, The Union Bank Company (the Bank). The Bank is state chartered commercial bank. The Bank offers a range of commercial and consumer banking services. The Bank offers a range of deposit services, including checking accounts, savings and money market accounts, certificates of deposit and individual retirement accounts. The Bank also provides supportive services, including online banking, bill pay, mobile banking, Zelle payment service, automatic teller machines and safe deposit box rentals. The Bank offers a range of loan products, including commercial and residential real estate loans, agricultural loans, commercial and industrial loans, home equity loans, consumer loans and small business administration loans. The Company’s subsidiaries include United (OH) Statutory Trust I, and Ohio State Bancshares Capital Trust 1. Its Bank subsidiaries: UBC Investments, Inc., and UBC Property, 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.

United Bancshares Inc. OH has a Value Score of 94, which is considered to be undervalued.

United Bancshares Inc. OH’s price-earnings ratio is 5.9 compared to the industry median at 10.4. This means that it has a lower price relative to its earnings compared to its peers. This makes United Bancshares Inc. OH more attractive for value investors.

United Bancshares Inc. OH’s price-to-book ratio is higher than its peers. This could make United Bancshares Inc. OH less attractive for value investors when compared to the industry median at 1.20.

You can read more about United Bancshares Inc. OH’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.

US Bancorp’s Value Grade

Value Grade:

U.S. Bancorp is a financial services holding company. The Company provides a range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant, and automated teller machine (ATM) processing, mortgage banking, insurance, brokerage and leasing. Its banking subsidiary, U.S. Bank National Association, is engaged in the general banking business and offers commercial and consumer lending, lending services, depository services and ancillary services. Its non-banking subsidiaries offer investment and insurance products to the Company's customers principally within its domestic markets, and fund administration services to a range of mutual and other funds. The Company's lines of business are corporate and commercial banking, consumer and business banking, wealth management and investment services, payment services, and treasury and corporate support.

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.

US Bancorp has a Value Score of 69, which is considered to be undervalued.

US Bancorp’s price-earnings ratio is 13.3 compared to the industry median at 10.4. This means that it has a higher price relative to its earnings compared to its peers. This makes US Bancorp less attractive for value investors.

US Bancorp’s price-to-book ratio is lower than its peers. This could make US Bancorp more attractive for value investors when compared to the industry median at 1.20.

You can read more about US 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.

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.

• Ames National Corporation stock has a Value Grade of B.
• Banco Santander Brasil SA (ADR) stock has a Value Grade of B.
• Midland States Bancorp Inc stock has a Value Grade of A.
• Sound Financial Bancorp Inc stock has a Value Grade of B.
• United Bancshares Inc. OH stock has a Value Grade of A.
• US Bancorp 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.

• 6 Undervalued Banks Stocks for Thursday, February 09
• 6 Undervalued Banks Stocks for Wednesday, February 08
• Which Is a Better Investment, Banco Bradesco SA (ADR) or Banco de Chile (ADR) Stock?
• Which Is a Better Investment, Banco Bradesco SA (ADR) or Sumitomo Mitsui Financial Group Inc(ADR) Stock?

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