Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 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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3 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Banks industry for Thursday, October 05, 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.

Popular Inc’s Value Grade

Value Grade:

Popular, Inc. (Popular) is a financial holding company. The Company operates in two segments: Banco Popular de Puerto Rico (BPPR), which includes its Puerto Rico business, and Banco Popular North America (BPNA), which includes its the United States mainland business. The Company has operations in Puerto Rico, the United States and the Caribbean. The Company's BPPR segment provides retail, mortgage and commercial banking services through its banking subsidiary, Banco Popular de Puerto Rico, as well as auto and equipment leasing and financing, investment banking, broker-dealer and insurance services through specialized subsidiaries. The Company's BPNA segment consists of Popular North America, Inc. (PNA) functioning as the holding company for its operations in the United States. It also operates PNA's subsidiary, E-LOAN, Inc. The banking operations of BPNA in the United States mainland are based in New York, Florida and New Jersey, conducted under the name of Popular Community 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.

Popular Inc has a Value Score of 93, which is considered to be undervalued.

When you look at Popular Inc’s price-to-sales ratio at 1.53 compared to the industry median at 1.93, this company has a lower price relative to revenue compared to its peers. This could make Popular Inc’s stock more attractive for value investors.

Popular Inc’s price-earnings ratio is 4.56 compared to the industry median at 7.66. This means it has a lower share price relative to earnings compared to its peers. This could make Popular Inc more attractive for value investors.

Now, let’s assess Popular Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 3.9, when compared to the industry median of 5.0, 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. Popular Inc’s shareholder yield is higher than its industry median ratio of 4.34%. 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. Popular Inc’s price-to-book ratio is higher than its industry median ratio of 0.87. This could make Popular Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Popular Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Popular Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 8.35. This could make Popular Inc more attractive because the lower P/FCF ratio indicates that Popular 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.

HMN Financial, Inc.’s Value Grade

Value Grade:

HMN Financial, Inc. is a stock savings bank holding company of Home Federal Savings Bank (the Bank). The Bank operates retail banking and loan production facilities in Minnesota, Iowa, and Wisconsin. The Bank?s portfolio includes real estate, which includes single-family, multi-family and commercial, construction and development; consumer; and commercial business. It offers conventional fixed rate single-family loans that have maximum terms of 30 years. It typically sells the majority of fixed rate loan originations with terms to maturity of 15 years or greater that are eligible for sale in the secondary market. The commercial real estate and multi-family loan portfolio includes loans secured by motels, hotels, apartment buildings, churches, manufacturing plants, land developments, office buildings, movie theaters, shopping malls, nursing homes, restaurants, warehouses, and other non-residential building properties primarily located in the upper Midwestern portion of the United States.

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.

HMN Financial, Inc. has a Value Score of 78, which is considered to be undervalued.

HMN Financial, Inc.’s price-earnings ratio is 11.7 compared to the industry median at 7.7. This means that it has a higher price relative to its earnings compared to its peers. This makes HMN Financial, Inc. less attractive for value investors.

HMN Financial, Inc.’s price-to-book ratio is higher than its peers. This could make HMN Financial, Inc. less attractive for value investors when compared to the industry median at 0.87.

You can read more about HMN Financial, 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.

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 operations are 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 81, which is considered to be undervalued.

Uwharrie Capital Corp’s price-earnings ratio is 6.0 compared to the industry median at 7.7. 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 0.87.

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 3 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.

• Popular Inc stock has a Value Grade of A.
• HMN Financial, Inc. stock has a Value Grade of B.
• Uwharrie Capital Corp stock has a Value Grade of A.

Now that you have a bit more background about each of the 3 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 Thursday, October 05
• Which Is a Better Investment, Atlantic Union Bankshares Corp or Banco de Chile (ADR) Stock?
• Which Is a Better Investment, Axos Financial Inc or Banco de Chile (ADR) Stock?
• Which Is a Better Investment, BancFirst Corp or Banco de Chile (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.