In this article, we will be taking a look at 11 cheap bank stocks to buy before they take off. To skip our detailed analysis of the banking sector in 2023, you can go directly to see the 5 Cheap Bank Stocks To Buy Before They Take Off.
Moody's Rating Actions On US Banks
On August 7, Moody's announced its rating actions on 27 US banks. These included the downgrades of 10 banks, while six other banks were placed on review for possible downgrades, and the outlooks of 11 other banks were changed from stable to negative. The credit rating agency considered several factors, including the banks' second-quarter earnings releases, interest rate risks, and more, in coming to these decisions. According to Moody's, the second quarter results for most banks in the US showed that they were suffering from growing profitability pressures, which the agency believes is likely to reduce their ability to generate internal capital. At the same time, the threat of a mild US recession, expected to hit in early 2024, also influenced the rating decisions.
While several smaller and regional banks made the list of downgraded banks, some bigger names such as JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Bank of America Corporation (NYSE:BAC) managed to avoid landing the list. However, this is not true for every big bank in the country. Additionally, CNBC's Power Lunch on August 8 noted something of interest to investors looking at bank stocks today. CNBC reporter Leslie Picker said the following:
"The major issues that the ratings agency flagged have been pretty well telegraphed since Moody's' prior round of actions for the regionals in the spring. Even as equity investors have been willing to look past some of the major industry headwinds, bond and options investors have not been quite as sanguine."
Why Now?
The fact that Moody's decided to make this move now may signify that the agency is trying to tell banks that while there has been a "quiet summer" on the banking front so far, "we may not be out of the woods quite yet." Picker also noted that these negative rating actions were not anticipated by the market at all. On why the move came this month, Picker said the following:
"Why now? We've seen the bulk of the earnings releases from the regionals at this point in time. So I think they were able to, you know, collate a bunch of the balance sheets, income statements, and draw some conclusions based on that."
The Moody's rating action is an additional setback for the banking and financial sector so far this year. Since the start of 2023, the banking sector has been struggling to retain its position in the market. The collapse of the Silicon Valley Bank (SVB) and some other banks have already dented the industry. In light of this, the valuations of many major banks have dropped, which is a development that seems to have spooked many individuals in the market. At the same time, opportunistic investors are looking at the current situation of bank stocks as something they can profit from, considering the fact that well-established bank stocks that are usually much more expensive per share are now trading at lower valuations. This can thus be seen as the best time to pick up bank stocks at an attractive bargain. Considering the above, we have compiled a list of bank stocks to buy before they take off. They include some small bank stocks to buy alongside bigger names in the banking and financial sector.
JPMorgan Chase & Co. (NYSE:JPM) is a diversified banking company based in New York. The company offers deposit, investment, and lending products, alongside cash management among more.
Betsy Graseck, an analyst at Morgan Stanley, maintains an Overweight rating on shares of JPMorgan Chase & Co. (NYSE:JPM) as of July 18. The analyst also raised the firm's price target on the stock from $160 to $173.
There were 112 hedge funds long JPMorgan Chase & Co. (NYSE:JPM) in the first quarter. Their total stake value in the company was $4.1 billion.
Greenhaven Associates was the most prominent shareholder in JPMorgan Chase & Co. (NYSE:JPM) at the end of the first quarter, holding 4.8 million shares in the company.
Madison Investments made the following comments about JPMorgan Chase & Co. (NYSE:JPM) in its second-quarter 2023 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) has rebounded nicely following the mini-bank crisis in March. They held an analyst meeting in May at which they gave updated guidance on net interest income. They expect net interest income to increase to $84 billion from its forecast of $81 billion as First Republic assets will get a nice boost from rising interest rates.”
As of July 19, Chris Kotowski, an analyst at Oppenheimer, holds an Outperform rating on shares of Bank of America Corporation (NYSE:BAC). The analyst also raised his price target on the stock from $49 to $52.
Bank of America Corporation (NYSE:BAC) is a banking company based in Charlotte, North Carolina. The company offers traditional and money market savings accounts, certificates of deposit and IRAs, non-interest and interest-bearing checking accounts, among more.
We saw 91 hedge funds holding stakes in Bank of America Corporation (NYSE:BAC) at the end of the first quarter. Their total stake value in the company was $31.7 billion.
Galibier Capital Management was the largest shareholder in The Bank of Nova Scotia (NYSE:BNS) at the end of the first quarter, holding 526,199 shares in the company.
The Bank of Nova Scotia (NYSE:BNS) is a provider of banking products and services globally. It is based in Toronto, Canada. The company operates through its Canadian Banking, International Banking, Global Wealth Management, and Global Banking and Markets segments.
A total of 11 hedge funds were long The Bank of Nova Scotia (NYSE:BNS) in the first quarter, with a total stake value of $66.1 million.
Like JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Bank of America Corporation (NYSE:BAC), The Bank of Nova Scotia (NYSE:BNS) is a popular bank stock you can buy at a discount right now.
Our hedge fund data for the first quarter shows 37 hedge funds holding stakes in M&T Bank Corporation (NYSE:MTB). Their total stake value in the company was $497.3 million.
M&T Bank Corporation (NYSE:MTB) is a regional banking company based in Buffalo, New York. It is the bank holding company for Manufacturers and Traders Trust Company and Wilmington Trust, National Association, that offers retail and commercial banking products.
An Overweight rating was reiterated on shares of M&T Bank Corporation (NYSE:MTB) by Manan Gosalia, an analyst at Morgan Stanley, on July 21. The analyst also maintains a price target of $155 on the stock.
This is what The London Company had to say about M&T Bank Corporation (NYSE:MTB) in its first-quarter 2023 investor letter:
“M&T Bank Corporation (NYSE:MTB)- MTB underperformed, along with other regional banks, on the failures of Silicon Valley Bank and Signature Bank and fear of broader contagion. Importantly, MTB has neither the same kind of client concentration risk nor duration risk that impacted Silicon Valley Bank. Particularly with respect to duration risk, MTB was an outlier in its conservatism with respect to buying shorter-term securities in a very low rate environment. MTB does have exposure to commercial real estate, including office real estate. While we do expect some elevated credit losses in this portion of the loan portfolio, we note MTB has historically been an effective manager of risk, and we remain confident that management has behaved with appropriate caution.”
Holding 2.4 million shares in the company, Pzena Investment Management was the most prominent shareholder in Regions Financial Corporation (NYSE:RF) at the end of the first quarter.
Ryan Nash, an analyst at Goldman Sachs, maintains a Buy rating on shares of Regions Financial Corporation (NYSE:RF) as of July 25. The analyst also raised his price target on the stock from $20 to $22.50.
Regions Financial Corporation (NYSE:RF) is another regional banking company on our list. It operates through its Corporate Bank, Consumer Bank, and Wealth Management services. The company is based in Birmingham, Alabama.
Regions Financial Corporation (NYSE:RF) was seen in the 13F holdings of 29 hedge funds in the first quarter, with a total stake value of $221.2 million.
Truist Financial Corporation (NYSE:TFC) was spotted in the portfolios of 48 hedge funds at the end of the first quarter. Their total stake value in the company was $1.1 billion.
A Buy rating was maintained on shares of Truist Financial Corporation (NYSE:TFC) on July 24 by Keith Horowitz, an analyst at Citigroup. The analyst also placed a price target of $39 on the shares.
Truist Financial Corporation (NYSE:TFC) is a regional banking company based in Charlotte, North Carolina. The company offers noninterest-bearing checking, interest-bearing checking, savings, and money market deposit accounts, alongside certificates of deposit and individual retirement accounts, among more.
Here's what Tweedy, Browne said about Truist Financial Corporation (NYSE:TFC) in its first-quarter 2023 investor letter:
“The Funds received very little in the way of return contributions from many of their financial, energy, media, and healthcare holdings. While it would appear that a crisis was avoided by the quick intervention of bank regulators in the US and Switzerland, some uneasiness still remains in the global banking community. This turmoil couldn’t help but have a negative impact on investor sentiment and in turn on Fund bank holdings such as Truist Financial Corporation (NYSE:TFC).”
Like JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Bank of America Corporation (NYSE:BAC), Truist Financial Corporation (NYSE:TFC) is a bank stock that is undervalued and preferred by hedge funds.
