In this article, we will discuss the 10 most undervalued bank stocks to invest in according to analysts.
The Banking Industry’s Outlook Under the Trump Admin
Amidst the enthusiasm of the new President Donald Trump for digital assets, it is important to know that US banks have avoided allowing customers to use crypto for retail transactions. Regarding the banking industry’s approach to digital currencies, the CEO of Bank of America, Brian Moynihan, told CNBC that if the regulators allow, the American banking industry would jump into crypto payments. Speaking on this stance, Moynihan stated:
“If you go down the street here and you go in and buy lunch, right, if you can pay with Visa, Mastercard, a debit card, Apple Pay, etc., this would just be another form of payment”
At the same time, Trump’s lighter regulatory approach is expected to reduce some of the burden on the banking industry imposed by Biden’s administration and is likely to spur dealmaking. Barclays senior equity analyst Jason Goldberg told Yahoo Finance that the environment is a ‘pro-growth, less regulation backdrop’ and favorable for increased loan growth and enhanced capital market activity among banks.
JPMorgan’s Mary Erdoes expressed optimism for deals in the banking industry under the new admin, saying:
“Companies don’t want to go public or can’t go public because of the heavy regulatory burden and hopefully you’ll see that [change]”
With increased mergers and acquisitions being anticipated in the United States under the new administration, CNBC mentioned European banking leaders hoping for more deal-making activity on the continent. The chief executive of the largest bank in the Netherlands, ING, is of the opinion that too many banks in Europe deem the sector inefficient. In comparison to the US, fragmented laws across Europe tend to prevent a more efficient banking system. Simultaneously, the chief executive of Swiss bank UBS, Sergio Ermotti, thinks the policy stance taken by regulators under Trump would encourage deal-making among several small and regional banks while he considers the US authorities unlikely to weaken regulations for larger banks.
With that being said, let’s move to the 10 most undervalued bank stocks to invest in according to analysts.
Our Methodology:
In order to compile a list of the 10 most undervalued bank stocks to invest in according to analysts, we first used a stock screener to shortlist bank stocks that are trading at a forward P/E of less than 15 and that analysts see at least 15% upside to. The 10 most undervalued bank stocks to invest in according to analysts have been arranged in ascending order of their average upside potential.
At Insider Monkey we are obsessed with 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).
10 Most Undervalued Bank Stocks To Invest In According To Analysts
10. East West Bancorp, Inc. (NASDAQ:EWBC)
Average Upside Potential: 18.06%
Forward P/E: 11.93
East West Bancorp, Inc. (NASDAQ:EWBC) is the parent company of East West Bank. East West Bank started operating in 1973 as a federally chartered savings institution catering to the immigrant Chinese-American community and has evolved into a full-service commercial bank serving the US and China markets over the years.
East West is a leading regional bank and falls among some of the only US banks with a full banking license in China, alongside an extensive cross-border banking experience. East West Bank holds the privilege of being the largest independent bank headquartered in Southern California. It has 98 US branches in leading metropolitan markets as well as 4 branches in Asia to support cross-border business.
Other than having decades of cross-border expertise and serving an attractive market niche with high-growth demographics, a comparison with peers shows that East West has demonstrated strong profitability while outperforming peers on credit over the past decade. East West remains well positioned for growth trends, with a slowing Chinese economy still 1.5x faster than the U.S., supporting cross-border business.
9. Banco Santander, S.A. (NYSE:SAN)
Average Upside Potential: 24.21%
Forward P/E: 6.68
Banco Santander, S.A. (NYSE:SAN) is a leading Spanish multinational financial services company. Santander was founded in 1857 and it became Spain’s seventh-largest financial institution by its 100th anniversary in 1957. The company is structured under five global businesses including Retail & Commercial Banking, Digital Consumer Bank, Corporate & Investment Banking, Wealth Management & Insurance, and Payments.
The firm’s business model is based upon unique competitive advantages such as diversification, a global scale, and customer focus. While Banco Santander, S.A. (NYSE:SAN) focuses on achieving well-balanced diversification between businesses and markets, its in-market and global scale helps enhance local banks’ profitability. As of June 2024, SAN boasts 168 million of customers and €1,786 total assets. In recent years, the company has expanded its customer base with balanced growth by business and regions.
The first nine months of 2024 proved to be promising for Banco Santander, S.A. (NYSE:SAN) with a profit of €9,309 million, up 14% year-over-year, driven by solid revenue growth across all global businesses and regions as well as good cost control. The firm reaped the benefits of the higher customer activity, margin management, and its global scale in the form of net interest income rising 9% and net fee income rising 6%, resulting in 8% total income growth.
8. WesBanco, Inc. (NASDAQ:WSBC)
Average Upside Potential: 25.23%
Forward P/E: 10.03
WesBanco, Inc. (NASDAQ:WSBC) is a bank holding company based in West Virginia. The company offers retail and commercial banking solutions, trust, brokerage, wealth management, and insurance services. WesBanco was founded in 1870.
WesBanco has served as a community-focused, regional financial services partner for more than 150 years. The firm has carved itself a solid national reputation as a safe and profitable bank holding company while offering large bank capabilities with the feel of a community bank. Alongside a balanced and strong market presence across diverse geographies that tend to support disciplined organic growth, the firm benefits from diverse revenue streams.
The firm’s full suite of commercial and consumer banking capabilities remains complemented by a wealth management business with strong capabilities built upon an over 100-year track record of success. In its recent quarter, WesBanco, Inc. (NASDAQ:WSBC) maintained its robust business momentum. The firm was capable of growing its total loans by $1.1 billion and deposits by $0.7 billion, year-over-year.
7. Dime Community Bancshares, Inc. (NASDAQ:DCOM)
Average Upside Potential: 31.41%
Forward P/E: 11.6
Dime Community Bancshares, Inc. (NASDAQ:DCOM) engages in commercial banking and financial services via its wholly owned subsidiary, Dime Community Bank (Dime). Dime offers deposit and loan products and financial services to consumers, local businesses, and municipalities.
Dime ranks at the top by deposit market share on Greater Long Island amongst community banks. It serves as the only publicly traded community bank with more than $1.15 billion of Tier 1 capital headquartered on Greater Long Island. Dime operates in an attractive market, with $329 billion of total deposits in the Greater Long Island marketplace and a significant opportunity to continue to gain market share from bigger banks.
While the median household income in Dime’s deposit footprint exceeds the national average, the significant business density in its footprint enables Dime to build commercial relationships, allowing it to operate successfully as a pure-play in-market community commercial bank. With 61 new deposit-focused bankers hired since March 2023, Dime has been strategically expanding its deposit franchise. Meanwhile, Manhattan and select markets in New Jersey are targeted areas for expansion in 2025.
6. First Busey Corporation (NASDAQ:BUSE)
Average Upside Potential: 31.86%
Forward P/E: 9.25
First Busey Corporation (NASDAQ:BUSE) is a financial holding company headquartered in Champaign, Illinois. The firm operates through three segments, Busey Bank which offers a full suite of diversified financial products for individuals and businesses, Busey’s Wealth Management offering wealth and asset management services for individuals and businesses, and lastly, FirsTech which specializes in the evolving financial technology needs of small and medium-sized businesses, highly regulated enterprise industries, and financial institutions.
First Busey Corporation (NASDAQ:BUSE) remains diversified with premier commercial bank, wealth management, and payment technology solutions for individuals and businesses. The firm derives significant revenue from diverse and complementary fee income sources. The powerful combination of three business lines drives strong noninterest income for the company. Noninterest income represented 29.9% of total revenue for the firm during its most recent quarter, and noninterest income generated from the Wealth Management and FirsTech operating segments comprised 60.4% of total noninterest income.
BUSE leverages its track record as a proven successful acquirer to expand operations through disciplined M&A. Recently, the company received approval from the Federal Reserve to acquire CrossFirst Bankshares, Inc., the holding company for CrossFirst Bank. The transaction will be the biggest in Busey’s history and would result in a combined organization with $20 billion in proforma assets. Busey has been successful in integrating 7 whole bank mergers, aggregating more than $7 billion in total assets and one wealth management firm since 2015.
5. Merchants Bancorp (NASDAQ:MBIN)
Average Upside Potential: 35.76%
Forward P/E: 7.48
Merchants Bancorp (NASDAQ:MBIN) is a diversified bank holding company based in Carmel, Indiana. The firm operates different lines of business which include Multi-family Mortgage Banking, Mortgage Warehousing, and Banking.
Merchants Bancorp, ranked as a top-performing U.S. public bank by S&P Global Market Intelligence, has $12.9 billion in deposits and $18.7 billion in assets, as of September 30, 2024. While the company has maintained superior profitability and earnings growth profile in every interest rate environment, Merchant’s unique originate-to-sell model with differentiated revenue streams tends to reduce earnings volatility through the full rate cycle.
Although Merchants Bancorp (NASDAQ:MBIN) saw its financials get impacted in the recent quarter due to unfavorable fair market value adjustments related to derivatives and servicing rights and some isolated credit issues, the firm was successful in surpassing prior records with its total assets of $18.7 billion exceeding any level previously reported and raising its tangible book value to a record high of $32.38, up 25% year-over-year.
4. KB Financial Group Inc. (NYSE:KB)
Average Upside Potential: 36.00%
Forward P/E: 5.95
KB Financial Group Inc. (NYSE:KB) is a leading Korean financial services provider and has 11 subsidiaries including KB Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Life Insurance, KB Asset Management, KB Capital, KB Real Estate Trust, KB Savings Bank, KB Investment, KB Data Systems. KB Kookmin Bank strives to be a reliable bank, offering the best financial services and focusing on being customer-centric.
The company’s core strengths stem from its expertise, extensive customer base, wide distribution network, and strong brand. As one of South Korea’s largest banks, KB Financial Group Inc. (NYSE:KB) has the industry’s strongest capital position, a renowned low-cost deposit franchise, and leading fee income, as stated by Oakmark International Fund, which was excited to buy the shares at an attractive valuation for a bank ‘commonly acknowledged as the best bank in South Korea’.
KB posted a cumulative net profit of KRW4,395.3 billion for Q3 2024. The group continues to generate stable profits based on balanced growth in key non-banking subsidiaries including securities, insurance, and card. Although the company was exposed to challenges from rate cuts and an economic downturn, the aforementioned sectors played a positive role in the overall financial performance.
3. Itaú Unibanco Holding S.A. (NYSE:ITUB)
Average Upside Potential: 40.98%
Forward P/E: 7.42
Itaú Unibanco Holding S.A. (NYSE:ITUB) is a full-service, universal bank with a presence in 18 countries. It is present in 18 countries with its main businesses including Corporate & Investment Banking, Asset Management, Private Banking, and Retail Business. The firm adopts the “Phygital” model (a combination of physical and digital) to provide its clients with the freedom to choose how they want to relate to the bank.
Based on market value on October 31, the company serves as the largest bank in Latin America with 100 years of history. The firm’s ability to adapt, innovate, and change has enabled it to achieve the status of a universal bank. Apart from offering the most complete portfolio of financial products and services, the firm serves clients how, when, and where they want to be served being a digital bank with the advantage of in-person service.
The firm’s recurring managerial result reached R$10.7 billion in Q3 2024, up 19.4% year-over-year. At the same time, the credit portfolio grew 9.9% year-over-year. Revenues from investment banking operations and brokerage services declined as a result of lower activity in the fixed-income market, offset by improved revenues from credit card activities, asset management, and higher result from insurance operations.
2. Inter & Co, Inc. (NASDAQ:INTR)
Average Upside Potential: 48.45%
Forward P/E: 8.64
Inter & Co, Inc. (NASDAQ:INTR) offers various services including banking, investments, mortgages, credit, insurance, and cross-border payments. The company provides comprehensive financial and lifestyle solutions to serve the evolving needs of modern consumers. It was originally established as a traditional bank, transitioned into a digital bank in 2015, and expanded its offerings to include a financial super app.
Inter serves as the pioneering and differentiated financial super app offering financial and digital commerce services to millions of customers across the Americas. The company continues to improve its super app with new features and hyper-personalizes the client experience, driving more engagement and client deposits. The above efforts are translating into higher revenues for Inter & Co, Inc. (NASDAQ:INTR). The company closed its most recent quarter with a record net income of R$ 260 million.
The firm’s strong and growing base of clients is a core strength, evident from a consistent improvement in activation and engagement metrics leading to massive interactions within INTR’s ecosystem, for instance, in over 15 million log-ins per day and 18 million depositors. As of the third quarter of 2024, INTR boasted 34.9 million clients, with 1.1 million net new active clients, as well as an activation rate increase for the 7th consecutive quarter. The company’s business clients present a major growth opportunity with more than 2 million accounts and a growth rate of 18% year-over-year.
1. Shinhan Financial Group Co., Ltd. (NYSE:SHG)
Average Upside Potential: 50.10%
Forward P/E: 4.88
Shinhan Financial Group Co., Ltd. (NYSE:SHG) is a financial holding company that originated from Shinhan Bank, which came into being in 1982 and was the first private bank in Korea.
Shinhan Bank positioned itself as a blue-chip bank by creating a nationwide network and going public with an initial public offering. It took the initiative to set up a financial holding company that would enable it to grow its scale across multiple sectors as a comprehensive financial group. Shinhan Financial Group is currently one of the strongest leading players in the Korean financial sector, leading the way in innovation. A customer-centered business has made the company what it is today, driving its sustainable growth.
Polaris Global Equity Strategy said the following regarding the company in its Q3 2024 investor letter:
“On the backdrop of interest rate cuts, financials shined on expectations for loan demand and cheaper cost of capital; in fact, all sector holdings were in absolute positive territory. Shinhan Financial Group Co., Ltd. (NYSE:SHG) was the top contributor, with a second quarter earnings beat on better non-interest income with credit costs under control. An enhanced shareholder return policy was a pleasant upside surprise, as Shinhan committed to returning 50% of earnings to investors through dividends and share buybacks by 2027.”
While we acknowledge the potential of SHG 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 SHG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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