- TFC
- SFBS
- HOPE
Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance – over the past six months, the industry’s 8% gain has fallen behind the S&P 500’s 13% rise.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one resilient bank stock at the top of our wish list and two we’re steering clear of.
Two Bank Stocks to Sell:
Hope Bancorp (HOPE)
With roots in serving Korean-American communities and now expanded to a multi-ethnic clientele across 12 states, Hope Bancorp (NASDAQ:HOPE) operates Bank of Hope, providing commercial and retail banking services with a focus on serving multi-ethnic communities across the United States.
Why Should You Sell HOPE?
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Net interest income stagnated over the last five years and signals the need for new growth strategies
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Earnings per share fell by 4.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
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Tangible book value per share was flat over the last two years, indicating it’s failed to build equity value this cycle
At $14.29 per share, Hope Bancorp trades at 0.8x forward P/B. Read our free research report to see why you should think twice about including HOPE in your portfolio, it’s free.
Truist Financial (TFC)
Born from the 2019 merger of BB&T and SunTrust in one of the largest banking combinations since the 2008 financial crisis, Truist Financial (NYSE:TFC) is a bank holding company that offers a wide range of financial services including consumer and commercial banking, wealth management, insurance, and lending solutions.
Why Do We Pass on TFC?
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Scale is a double-edged sword because it limits the firm’s growth potential compared to its smaller competitors, as reflected in its below-average annual net interest income increases of 1.9% for the last five years
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Projected net interest income growth of 1.7% for the next 12 months suggests sluggish demand
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Earnings per share have contracted by 1.6% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Truist Financial is trading at $52.65 per share, or 1.1x forward P/B. If you’re considering TFC for your portfolio, see our FREE research report to learn more.
