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11 Most Undervalued Bank Stocks To Buy According To Wall Street Analysts

Ramish Cheema
8 min read

In This Article:

In this piece, we will take a look at the 11 most undervalued bank stocks to buy according to Wall Street analysts. If you want to skip out on our introduction to the banking industry and the stock market, then head on over to 5 Most Undervalued Bank Stocks To Buy According To Wall Street Analysts.

Banking has been one of the most heavily covered industries in the financial press this year. This is due to the Federal Reserve's aggressive interest rate hiking cycle that has pushed U.S. interest rates to multi-decade highs. The rate set by the Fed is central to the banking industry's operations because banks are required to lend and borrow from each other at this rate. The higher this rate is, the costlier the borrowing becomes, and this is then transferred down to both consumers and businesses. For businesses, their short term borrowing revolves primarily around financing daily operations as they wait to collect payments and send money to suppliers before products generate revenue. For consumers, the high interest rates affect credit rates and other borrowing products.

However, while the bank rate is primarily concerned with bank to bank borrowing and lending, a rapid interest rate hike has broader effects on the economy. Some of these also directly affect banks, particularly if the bond market is disrupted. Bonds that are issued with lower rates drop in value when the interest rate increases and banks often rely on bonds to maintain their capital and asset requirements as legally mandated. The turmoil in the bond market also thrust the banking industry into the limelight earlier this year as some banks that had relied on cheaper bonds discovered that their assets had dropped rapidly in value. For more details on the mini banking crisis in the U.S. in 2023, you should check out Top 20 Most Profitable Banks in the World.

Moving into the second half of 2023, the banking industry is still quite dynamic. The March crisis spurred regulatory authorities into action, and new roles have been proposed to make sure that a similar crisis in the future does not affect the American economy. While the banks that failed in March were regional banks with smaller asset bases that did not put the economy at risk, other big banks, such as JPMorgan Chase & Co. (NYSE:JPM), can cause quite a lot of trouble if they were to face a similar environment. The rules are designed to ensure that the big banks are adequately capitalized to ensure that any turmoil does not spell into them being unable to meet their commitments. If you want to learn more about the different kinds of interest rates, and the results of a Federal Reserve stress test on the performance of big banks, we've covered it extensively as part of our 15 Worst Performing Bank Stocks in 2023 piece.

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