3 incredibly cheap bank stocks to buy now

By | March 17, 2024

The market has recovered impressively in recent months, with the S&P500 index hits record highs confirming a new bull market in stocks is underway. This recent rally could put pressure on some stock valuations, making it harder to find deals. Good news for you: there are still many offers on the market today.

Bank stocks have been slow to recover in the high interest rate environment, which has been a headwind for businesses. However, there are at least three bank stocks still trading at incredibly low valuations that are poised to take off.

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1. Citi Group

Citi Group (NYSE:C) is one of the largest banks in the US, but has struggled in recent years as its broad global business efforts have spread it too thin. Not only that, but a few years ago the bank was fined $400 million for deficiencies in internal controls, risk management and data management. As a result, Citigroup’s performance struggled compared to its peer banks.

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Due to its recent history of underperformance, Citigroup is trading at a dirt-cheap 33% discount to tangible book value. In comparison, bank of America And Wells Fargo are trading at a premium of 44% and 54% respectively to book value.

Citigroup’s cheap valuation is one aspect that makes the company attractive. However, CEO Jane Fraser’s guidelines, if implemented, could earn Citigroup a higher valuation. Fraser took over as CEO in 2021 and laid out plans to eliminate less profitable activities while focusing on activities that will increase efficiency. As part of this move, the company announced it would phase out thirteen global consumer franchises, reduce its workforce, consolidate operations and streamline operations.

Some analysts are quite optimistic about the strategy. Wells Fargo analyst Mike Mayo, for example, thinks Citi’s stock price could reach $100 in the next three years. While Citigroup has a lot of work to do, the cheap valuation provides some margin of safety and it seems like a well-priced stock to buy today.

2. Goldman Sachs

Rising interest rates have dampened investment banking activity in recent years, with major consequences for the economy Goldman Sachs (NYSE:GS)one of the largest investment banks in the world.

In 2022, rising interest rates created an air of uncertainty around the markets, including initial public offerings (IPOs) and mergers and acquisitions, both bread-and-butter businesses for investment bankers. The IPO markets of the past two years have been among the lowest-volume in the U.S., according to consulting firm PwC. In total, there were 175 IPOs in the past two years, well below 2021, with a whopping 951 IPOs.

Goldman Sachs’ investment banking revenue fell 56% in two years ending in 2023. It has also taken other steps to consolidate its business, such as winding down its consumer business, which has struggled in recent years. The difficult circumstances have made it difficult to be optimistic about Goldman Sachs. Today, the investment bank trades at 16.8 times earnings and just 9.9 times forward one-year earnings.

However, the IPO markets are showing signs of life, with Reddit, Stripe and Klarna among the most anticipated IPOs that could happen later this year. If they launch successfully, it could be a good sign that risk appetite is back. If that’s the case, Goldman Sachs looks like an excellent bargain to buy today, before we see a further uptick in activity.

3. Lending club

Credit Club (NYSE:LC) is a consumer-oriented lender that helps consumers refinance their debt and convert it into personal loans. With credit card debt surpassing $1.13 trillion, consumers have racked up debt at a time when credit card interest rates are near record highs.

This rising consumer debt could create huge opportunities for Lending Club. The company started in 2006 as a peer-to-peer lending platform, but transformed into a consumer lender and bank after acquiring Radius Bancorp in 2021. As a result, it owns about 15% to 25% of its highest quality loans. loans on its books, which can generate net interest income in addition to the income it earns for originating and selling the remaining loans to the market.

LendingClub CEO Scott Sanborn told investors, “We have prepared our personal lending franchise to meet the historic refinancing opportunities ahead.” To do this, Lending Club is developing products that allow members to convert credit card balances into payment plans. In other words, customers can ‘top up’ an existing personal loan, making it easy to manage their debt balance.

Consumers can consolidate their loans, especially when interest rates drop, which benefits LendingClub’s core business. If so, this could be an excellent time to pick up shares, which are priced cheaply at an 18% discount to tangible book value and 11 times forward earnings, ahead of this historic refinancing opportunity.

Should You Invest $1,000 in Citigroup Now?

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen holds positions in LendingClub. The Motley Fool holds and recommends Bank of America, Goldman Sachs Group, and JPMorgan Chase. The Motley Fool has a disclosure policy.

3 Incredibly Cheap Bank Stocks to Buy Now was originally published by The Motley Fool

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