Truist Financial Corporation (TFC): A Good Undervalued Stock to Invest In Now
We recently compiled a list of the 16 Most Undervalued Stocks to Buy Now. In this article, we are going to take a look at where Truist Financial Corporation (NYSE:TFC) stands against the other undervalued stocks.
With the US stock market touching record highs, mainly driven by significant contributions from big technology sectors, domestic and global investors continue to observe market dynamics to tap potential opportunities. Therefore, identifying undervalued stocks becomes important as they might provide substantial value amidst high valuations across sectors.
Concentration of S&P 500
Courtesy of “Magnificent 7” stocks that captured investor attention in 2024, the market cap concentration in the leading US equities is the highest in decades. Strategists at Goldman Sachs believe the 10 largest US stocks now constitute ~33% of the S&P 500 index’s market value. This is well above the ~27% share reached at the peak of the tech bubble which was seen in 2000.
The present concentration helped in driving a period of strong US market returns. The market saw an annualized total return of ~16% over the previous 5 years. This compares to the 30-year annual average of 10%. As per Goldman Sachs, the top 10 stocks made up for over a third of that gain. That being said, “today’s top stocks are trading at lower valuations than the largest stocks did at the peak of the tech bubble in 2000.”
Despite healthy returns, investors are anxious regarding the extreme current degree of market concentration relative to the recent history.
There appear to be similarities between the current conditions today and the episodes in 1973 and 2000. The labor market seems to be in a decent state, and concentration has been rising along with robust equity market returns. In these episodes, the peak of equity market concentration also led to the peak of a bull market, and the US economy saw recessionary fears in the subsequent year.
However, the 1964 experience reflects that an ongoing bull market might continue to move higher despite a decline in market concentration. After the market concentration peaked, stock prices and the US economy were resilient for an extended period.
Are The US Stocks Overvalued or Undervalued?
The valuations of the largest stocks are well below the previous highs. As of now, the 10 largest stocks continue to trade at the collective forward P/E multiple of ~25x, well below the peak valuations seen in the largest stocks in 2000, 2020, and the middle of 2023.
The valuations are also lower based on the premium the largest stocks are trading at relative to the rest of the market. That is to say that the ~35% valuation premium today remains well below the 80% premium seen in the middle of 2023 and the 100% premium of 2000. Though the degree of market cap concentration is indeed higher today as compared to the peak touched in 2000, the largest stocks are trading at much lower multiples than during the technology bubble.
Our methodology
We used the Finviz screener to extract the list of 16 Most Undervalued Stocks to Buy Now. We have shortlisted the stocks that are expected to report earnings growth this year and have a forward P/E multiple of less than ~21.66x (as the market trades at the forward multiple of ~21.66x). We ranked the stocks in ascending order of their hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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Truist Financial Corporation (NYSE:TFC)
Forward P/E as of August 22: 12.08x
Number of Hedge Fund Holders: 42
Expected EPS Growth this Year: 399.69%
Truist Financial Corporation (NYSE:TFC) is an American bank holding company, which has its headquartered in Charlotte, North Carolina.
It has released its 2Q 2024 results, with total revenues declining $6.5 billion mainly because of its securities losses. Its net interest income went up by 4.5% because of balance sheet repositioning and increased rates on earning assets. Its net interest margin rose 14 basis points. Moving forward, the company’s core banking businesses are expected to drive growth, with primary enablers being investment banking and trading revenue and continued expense discipline.
Overall, Truist Financial Corporation (NYSE:TFC)’s market position, capital strength, and strong execution are expected to act as tailwinds. The company has strong exposure to attractive geographies in Southeast and Mid-Atlantic and to the insurance brokerage business which should enable the company to achieve healthy growth in FY 2024.
The client deposits continue to stabilize, and asset quality metrics are within the company’s expectations. Despite muted loan demand, Truist Financial Corporation (NYSE:TFC) is optimistic about the dialogue with clients and its expanded capacity to support their needs.
Bank of America increased their price target on shares of Truist Financial Corporation (NYSE:TFC) from $45.00 to $50.00, giving the company a “Buy” rating on 23rd July.
Diamond Hill Capital, an investment management company, released its fourth-quarter 2023 investor letter. Here is what the fund said about Truist Financial Corporation (NYSE:TFC):
“On an individual holdings’ basis, top contributors to return in Q4 were all from our long book, including KKR, Citigroup and Truist Financial Corporation (NYSE:TFC). Banking and financial services companies Citigroup and Truist Financial rallied alongside large-cap banks broadly in Q4 as the market focused less on interest-rate risks amid the Fed’s announcement it was likely done raising interest rates. Banks also likely benefited from a relief rally following three-plus quarters of negative sentiment to start the year. Industry trends aside, however, we maintain our conviction in both companies. Under new leadership, Citigroup continues improving its position relative to competitors and has an attractive opportunity to close its valuation gap relative to peers, while Truist has compelling exposure to attractive geographies in the Southeast and Mid-Atlantic as well as to the insurance brokerage business which should allow the company to generate above average returns over time.”
Overall TFC ranks 13th on our list of the most undervalued stocks to buy. While we acknowledge the potential of TFC as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than TFC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.