Three Banks Worth the Investment

 | Mar 21, 2014 | 2:00 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

sasr

,

fitb

,

hban

Five years ago, the banking industry was on its knees. My, how times have changed. Some troubled institutions, such as Wachovia and Washington Mutual, did bite the dust, but others have cleaned up their books.

According to the Federal Deposit Insurance Corp., return on equity (ROE) for banks dropped from about 12% in 2007 to 1.4% in 2008 and a low of -3.68% in 2009, and spent the last several years recovering to 10.44% in 2013. That's not quite where things were in the years before the Great Recession when ROE was generally a bit above 12%, but it is quite a reversal of fortune, nonetheless.

The banks are not out of the woods, though. They have improved their profitability substantially (in part due to declines in loan-loss provisions), but top-line revenues have been largely flat. Yet their fairly solid financial footing makes them good candidates for those who need financial institutions in their portfolios in order to achieve asset diversification.

To choose stocks, I rely on a series of computerized strategies I created based on the writings of some of Wall Street's most savvy investors. Peter Lynch is one of history's most storied mutual fund managers, and his strategy currently favors several regional banks. These are all worth considering as investments.

The strategy's most important variable is the P/E/G ratio, which is price-to-earnings relative to growth. Growth is a valued factor when analyzing how much a stock is worth, and the P/E/G is a way to measure the cost of growth to the investor.

The Lynch strategy limits the P/E/G to no more than 1.0. At that level, the investor is paying $1 for every 1 percentage point of growth. A P/E/G of, say, 0.63, is pricing 1 percentage point of growth at $0.63.

Founded more than 140 years ago, Sandy Spring Bancorp (SASR) is a full-service commercial banking, mortgage banking and trust business. Its market is Maryland and Northern Virginia. Sandy Spring's P/E/G is a strong 0.63. Also in its favor is its equity to assets ratio. The minimum needed to get the highest grade from this strategy is an E/A ratio of 5% and Sandy Spring's is a robust 12%.

Fifth Third Bank (FITB) has 1,320 full-service banking centers in 12 states. With the Lynch strategy, a P/E/G below 0.50 is considered particularly strong, and Fifth Third is in this desirable territory with a P/E/G of 0.28. Its E/A ratio is a solid 11%.

Huntington Bancshares (HBAN) operates The Huntington National Bank, which has 700 branches and a geographic area covering six states. This bank's P/E/G is a desirable 0.59 and its E/A ratio is 10%.

The banking sector is on the mend, and these three banks are particularly strong performers. These are banks you can bank on.

Columnist Conversations

Conclusion This is a very quick note to visualize the solar stock peer group. I'll do some individual stories ...
Conclusion SSYS is one of two giants in the 3-D printing arena and is reporting earnings on November 5th, afte...
Market continues to hold onto impressive gains in the last day of a roller coaster trading month. This month ...
UPS is bumping up against a very heavy layer of resistance today. The stock's 1.6% gain has pushed shar...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.