In this piece, we will take a look at ten oversold bank stocks to buy. If you want to skip our overview of the banking sector and want to jump to the top five stocks, then take a look at 5 Oversold Bank Stocks To Buy.
Deciding whether to buy a stock can invovle analyzing several data points and factors. These can include understanding a firm's balance sheet to gauge its financial performance and perhaps even project cash flows in the future to make a rough estimate of the future share price to determine whether the shares are overvalued or undervalued. Another approach, which takes a lighter look at business operations, or combines it with the market trends, is called technical trading. This way of investing in stocks takes a look at several indicators of a share price, such as moving averages over several time periods, high and low prices, the volume of shares being traded, and the relative strength index (RSI).
Out of these, the RSI is used to measure whether a stock is facing an irrational investor reaction in the market. It does this by measuring the shift in share prices over a couple of weeks to determine whether the stock is oversold or if it overbought. There is no hard and fast rule for determining either of these. However, conventional wisdom says that an RSI reading below 30 indicates oversold while a reading above 50 indicates overbought. Of course, as is with any other financial indicator, such as the Price to Earnings ratio, one metric alone should never be used to make a trading decision. Instead, metrics for firms in an industry group, such as banking, have to be compared on a broader basis and then checked to see if any recent developments indicate longer term trends rather than short term dips or rises.
Using the RSI to see if a stock is oversold to make a buying decision requires the same thinking. After all, some stocks might be seeing too much fear than their fundamentals might validate, but others could be sold for genuine reasons such as management incompetence. For instance, Nikola Corporation (NASDAQ:NKLA), whose shares were trading at $64 in 2020 is now down to $2.67 after revelations of fraud. However, back when Nikola's shares were at their peak, its RSI index might have told you that the stock is oversold when the shares first started to dip in the wake of Hindenberg Research's scathing report. Another stock to take a look in this regard is Territorial Bancorp Inc. (NASDAQ:TBNK). A regional bank, its shares first dropped during the banking crisis earlier this year and then fell at July end as it reported weak results for the second quarter. According to the RSI, Territorial Bancorp Inc. (NASDAQ:TBNK) is significantly oversold, and you'll find out by how much as you read ahead.
Moving ahead to the banking industry, the sector has been facing quite a bit of turmoil lately along with opportunities for making more money. The banking sector's upheaval is driven by the Federal Reserve's rapid interest rate hikes, which both benefit and have the potential to harm banks. On the former front, banks benefit from high interest rates since they can immediately increase the rate they charge borrowers while keeping the rates offered on deposit products lower for longer. This increases the money (or the spread) that the banks earn by taking money and lending it out. On the flip side, a higher interest rate might also mean that the bank's assets, such as any bonds that it might have bought during a low rate environment, are now worthless. This can lead to the bank taking heavy hits, losses, and even shutting down as was the case in America earlier this year during the banking crisis.
As to what's happening in the banking world right now, July saw a number of banks report their earnings. The industry heavyweights, such as Bank of America Corporation (NYSE:BAC), Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC) passed the earnings test with flying colors. However, at the same time, smaller and regional banks didn't do so well. Apart from Territorial Bancorp, others such as KeyCorp (NYSE:KEY) and Truist Financial Corporation (NYSE:TFC) also missed profit estimates.
Therefore, given the weakness in the banking sector right now, it might be wise to take a look at the market and determine if any stocks are facing market exuberance on the downside. We've tried to do this today, and some names that have popped up are Territorial Bancorp Inc. (NASDAQ:TBNK), Waterstone Financial, Inc. (NASDAQ:WSBF), and Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO).
To compile our list of oversold bank stocks, we first tried searching for bank stocks with an RSI reading below 30. However, this yielded little results. Therefore, all bank stocks that have an RSI of below 50 and a Hold or better rating from analysts were then selected. They were then ranked through their RSI scores, which for this list, range between 36 to 47. The final list of most oversold bank stocks is as follows. While removing the analyst rating parameter could have yielded more stocks, this was avoided to provide some quality to the collection instead of relying solely on a single metric.
Enterprise Financial Services Corp (NASDAQ:EFSC) is a Clayton, Missouri based bank that provides accounts, brokerage, and other services. Out of the five analysts covering the stock, two have rated the shares as a Buy, which is a shift from earlier trends when it had one Buy and one Strong Buy rating. On average, the rating is a Buy, and the latest rating came from Raymond James which maintained it at Market Perform.
By the end of this year's first quarter, 13 of the 943 hedge funds part of Insider Monkey's database had held Enterprise Financial Services Corp (NASDAQ:EFSC)'s shares. Out of these, the firm's largest shareholder is Emanuel J. Friedman's EJF Capital with a stake of $5.8 million.
Just like Waterstone Financial, Inc. (NASDAQ:WSBF), Territorial Bancorp Inc. (NASDAQ:TBNK), and Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO), Enterprise Financial Services Corp (NASDAQ:EFSC) is an oversold stock on the analyst radar.
Columbia Financial, Inc. (NASDAQ:CLBK) is a New Jersey based regional bank. The firm's Q2 earnings report was typical of what we're seeing from regional banks as it missed analyst EPS estimates by a wide margin.
Seven of the 943 hedge funds polled by Insider Monkey had owned a stake in the bank as of Q1 2023. Columbia Financial, Inc. (NASDAQ:CLBK)'s biggest hedge fund investor is Jim Simons' Renaissance Technologies courtesy of an investment that is worth $14.5 million.
Eagle Bancorp Montana, Inc. (NASDAQ:EBMT) provides accounts, loans, and other banking products. The firm missed Q2 2023 earnings by a wide margin, but to keep shareholders happy, it promised a large dividend.
After sifting through 943 hedge fund holdings for this year's first quarter, Insider Monkey discovered that three had bought Eagle Bancorp Montana, Inc. (NASDAQ:EBMT)'s shares. Jim Simons' Renaissance Technologies is the largest shareholder with a stake of $998,000.
Shore Bancshares, Inc. (NASDAQ:SHBI) is a Maryland based bank that offers deposit and non deposit products. The shares are significantly down year to date as it has missed analyst EPS estimates in three out of its last four quarters. The last Overweight upgrade for the stock came a year back in August. However, a weaker analyst sentiment for the regional banking sector allowed it to beat revenue estimates for the second quarter even as it lagged the EPS estimates by quite a bit.
Insider Monkey's first quarter of 2023 survey of 943 hedge funds revealed that eight had invested in the bank. Shore Bancshares, Inc. (NASDAQ:SHBI)'s largest hedge fund investor during this time period was Phil Stone's Fourthstone LLC with a $21 million investment.
6. Citizens Financial Services, Inc. (NASDAQ:CZFS)
Latest RSI Reading: 44.42
Citizens Financial Services, Inc. (NASDAQ:CZFS) provides standard banking services such as deposit accounts along with trust administration, retirement planning, and consulting to oil and gas companies. Its performance across the previous three quarters has been strong particularly since it maintained EPS levels in Q2 2023 in line with previous quarters despite significantly low estimates by analysts. Therefore, the shares' losses year to date are significantly lower than the S&P Regional Banks Select Industry Index.
Only two of the 943 hedge funds part of Insider Monkey's database had held a stake in S&P Regional Banks Select Industry Index as of Q1 2023.
Territorial Bancorp Inc. (NASDAQ:TBNK), Citizens Financial Services, Inc. (NASDAQ:CZFS), Waterstone Financial, Inc. (NASDAQ:WSBF), and Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) are some oversold bank stocks.
