11 Most Undervalued Bank Stocks To Buy According To Hedge Funds

In this article, we discuss 11 most undervalued bank stocks to buy according to hedge funds.

The global economy is facing many challenges in 2023, including geopolitical tensions, supply chain disruptions, rising inflation, and tighter monetary policy. These factors may lead to a mild recession or stagflation in some countries. It is important for governments and businesses to closely monitor economic conditions and take appropriate actions to mitigate risks and support growth. While the global banking industry will surely feel the impact of the fragile macro conditions, large, well-capitalized, and diversified banks should survive the volatility considerably well.

In 2023, banks will need to optimize their operations in order to adapt to the changing economic environment. This will likely involve segmenting their customer base and focusing on different revenue generating strategies for each segment. Additionally, banks will need to leverage data more effectively in order to make strategic decisions and expand their use of digital solutions, both internally and in their interactions with customers. This will be crucial for banks to stay competitive and meet the evolving needs of their customers.

JPMorgan Chase & Co. (NYSE:JPM) reported Q4 2022 profit and revenue that exceeded expectations as interest income at the bank rose 48%, driven by accelerating rates and loan growth. Similarly, Bank of America Corporation (NYSE:BAC) posted fourth-quarter results that indicated higher interest rates helping the Wall Street giant compensate for the weakness in investment banking. Morgan Stanley (NYSE:MS) also announced Q4 2022 results that topped Wall Street expectations, supported by the bank’s peak wealth management revenue and growth in its trading segment. However, The Goldman Sachs Group, Inc. (NYSE:GS) declared its biggest earnings miss in a decade as Q4 2022 revenue declined and expenses and loan loss provisions were greater than anticipated.

Investors can also check out 12 Best Performing Bank Stocks in 2022, Top 25 Regional Banks Stocks, and 15 Biggest Banks in the World for better insights into the banking sector. Some of the most undervalued bank stocks popular among hedge funds include Comerica Incorporated (NYSE:CMA), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM). 

Our Methodology 

We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the 11 most undervalued bank stocks that have P/E ratios of less than or close to 10 as of January 20. The list is arranged in ascending order of the number of hedge fund holders in each firm. 

Photo by Mikel Parera on Unsplash

Most Undervalued Bank Stocks To Buy According To Hedge Funds

11. Hancock Whitney Corporation (NASDAQ:HWC)

Number of Hedge Fund Holders: 26

P/E Ratio as of January 20: 7.87

Hancock Whitney Corporation (NASDAQ:HWC) is a Mississippi-based financial holding company for Hancock Whitney Bank that provides traditional and online banking services to commercial and retail customers, as well as small businesses. Hancock Whitney Corporation is one of the most undervalued bank stocks according to elite hedge funds. 

On January 17, Hancock Whitney Corporation reported earnings for the fourth quarter of 2022. The company announced a GAAP EPS of $1.65, in-line with market estimates. The revenue of $372.57 million climbed 16.8% year-over-year but missed Wall Street consensus by $15.9 million. Total loan growth of $528.5 million also exceeded expectations. 

Truist analyst Jennifer Demba on January 18 maintained a Buy recommendation on Hancock Whitney Corporation but trimmed the price target on the shares to $56 from $60 after its Q4 results. The company’s lower net interest income was offset by better provision, the analyst told investors, adding that she expects Hancock Whitney Corporation’s profitability to remain “better than peers”. 

According to Insider Monkey’s data, 26 hedge funds were bullish on Hancock Whitney Corporation at the end of September 2022, compared to 22 funds in the prior quarter. Ryan Tolkin’s Schonfeld Strategic Advisors is the largest stakeholder of the company, with 738,967 shares worth $33.85 million.

Like Comerica Incorporated, Citigroup Inc., and JPMorgan Chase & Co., Hancock Whitney Corporation is one of the bank stocks backed by smart investors. 

10. SVB Financial Group (NASDAQ:SIVB)

Number of Hedge Fund Holders: 28

P/E Ratio as of January 20: 9.36

SVB Financial Group (NASDAQ:SIVB) is a California-based diversified financial services company that provides banking and financial products and services. It operates through four segments – Global Commercial Bank, SVB Private Bank, SVB Capital, and SVB Securities. On January 19, SVB Financial Group reported a Q4 GAAP EPS of $4.62, falling short of market estimates by $0.67. The revenue of $1.53 billion beat consensus estimates by $50 million. The average loans came in at $73.6 billion, an increase of $2.5 billion from the prior-year quarter. SVB Financial Group is one of the most undervalued bank stocks to consider. 

On January 3, Barclays analyst Jason Goldberg maintained an Equal Weight rating on SVB Financial Group and lowered the price target on the shares from $411 to $308. He believes that 2023 should see net interest margins peak for large-cap banks, deposit betas rise, loan growth slow, and loan losses increase.

Among the hedge funds tracked by Insider Monkey as of the end of Q3 2022, Ric Dillon’s Diamond Hill Capital is the leading stakeholder of SVB Financial Group, with 956,576 shares worth $321 million. 

Here is what Artisan Partners specifically said about SVB Financial Group in its Q2 2022 investor letter:

“SVB Financial Group is a leading provider of banking services to the innovation economy across the US and in key international markets. Headquartered in Silicon Valley, SVB offers financial products to clients in the technology, life science/healthcare and private equity/venture capital end markets. The rapid shift in the macroeconomic backdrop has caused crosscurrents in SVB’s profit cycle. We expect its net interest margin to increase meaningfully this year amid rapidly rising interest rates. Conversely, tighter economic conditions are having a significant impact on funding and spending activity within its core innovation economy market. In the short term, we expect these headwinds to overpower the interest rate tailwinds. There is a lot of dry powder waiting to be deployed by VC/PE funds, which leads us to believe funding activity should recover nicely once valuations reset to lower levels. Given our comfort with the company’s credit risk exposure (loans to early-stage tech companies are only 2% vs. 11% in 2008 and 30% in the dot.com era), and a valuation that seems to reflect a near worst-case scenario, we are remaining patient.”

9. Pinnacle Financial Partners, Inc. (NASDAQ:PNFP)

Number of Hedge Fund Holders: 30

P/E Ratio as of January 20: 9.87

Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) is a bank holding company for Pinnacle Bank, providing various banking products and services in the United States. Pinnacle Financial Partners, Inc. was incorporated in 2000 and is headquartered in Nashville, Tennessee. On January 18, the company reported a Q4 GAAP EPS of $1.76 and revenue of $401.78 million, missing estimates by $0.28 and $27.96 million, respectively. The board also authorized a new share repurchase program for up to $125 million of the common stock upon expiration of its current share repurchase program on March 31, 2023. 

On December 13, JPMorgan analyst Steven Alexopoulos maintained an Overweight rating on Pinnacle Financial Partners, Inc. but lowered the price target on the shares from $95 to $85. He is bearish on regional bank stocks heading into 2023 and sees the sector as being “particularly vulnerable” to significant negative earnings revisions over the next several quarters. 

According to Insider Monkey’s third quarter database, 30 hedge funds were bullish on Pinnacle Financial Partners, Inc., compared to 28 funds in the prior quarter. James Hanna’s North Reef Capital is the largest position holder in the company, with 241,521 shares worth $19.5 million. 

Carillon Tower made the following comment about Pinnacle Financial Partners, Inc. in its Q3 2022 investor letter:

“Pinnacle Financial Partners, Inc. is a regional bank operating in TN, NC, SC, VA, GA, and AL. Its well-regarded management team has established a unique, sales-oriented culture that has enabled industry leading loan growth, which was evident in the most recent quarter. Investors were also encouraged by impressive net interest margin expansion and favorable credit metrics.”

8. New York Community Bancorp, Inc. (NYSE:NYCB)

Number of Hedge Fund Holders: 31

P/E Ratio as of January 20: 7.34

New York Community Bancorp, Inc. (NYSE:NYCB) operates as the bank holding company for New York Community Bank that provides banking products and services in Metro New York, New Jersey, Ohio, Florida, and Arizona. On November 7, New York Community Bancorp, Inc. and Flagstar Bancorp received Federal Reserve approval for NYCB’s acquisition of FBC. The deal concluded on December 1. It is one of the most undervalued bank stocks to buy according to hedge funds. 

On December 21, DA Davidson analyst Peter Winter initiated coverage of New York Community Bancorp, Inc. with a Neutral rating and a $10 price target. He sees the bank as being in transition, with the recent appointment of Tom Cangemi as Chairman and CEO, and the completion of the Flagstar Bancorp acquisition, and believes that 2023 will be a transition year. He mentioned that the deposit base is improving, but the transition to a lower cost core deposit franchise will take several years.

According to Insider Monkey’s data, 31 hedge funds were bullish on New York Community Bancorp, Inc. at the end of September 2022, compared to 30 funds in the last quarter. Dmitry Balyasny’s Balyasny Asset Management, with 6.16 million shares worth $52.5 million. 

7. East West Bancorp, Inc. (NASDAQ:EWBC)

Number of Hedge Fund Holders: 33

P/E Ratio as of January 20: 9.35

East West Bancorp, Inc. (NASDAQ:EWBC) is a California-based bank holding company for East West Bank that provides a range of personal and commercial banking services to businesses and individuals. It operates through three segments – Consumer and Business Banking, Commercial Banking, and Other. East West Bancorp, Inc. is one of the most undervalued bank stocks to invest in. 

On December 5, Morgan Stanley analyst Manan Gosalia initiated coverage of East West Bancorp, Inc. with an Equal Weight rating and an $84 price target as he initiated coverage of 12 mid-cap banks and took over coverage of several others.

According to Insider Monkey’s third quarter database, 33 hedge funds were bullish on East West Bancorp, Inc., compared to 35 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 1.05 million shares worth $70.75 million. 

Here is what Aristotle Capital Management Value Equity has to say about East West Bancorp, Inc. in its Q1 2022 investor letter:

“We purchased East West Bancorp in the third quarter of 2017; however, our history with the business stretches back further having twice previously invested. Companies we consider to be high-quality like East West tend to remain high quality, and we have long admired the business for its uniqueness among the otherwise homogeneous U.S. banking industry. Its dominant market share built over generations in Asian communities – and difficult-to-replicate experience due to culture, geography and business practices – create distinct competitive advantages in our view. During our most recent holding period, the bank achieved sustained loan growth, a catalyst we identified, through its continued leadership position as the financial “bridge” for customers doing business in the U.S. and China. Moreover, East West also realized market share gains in its headquarters state of California. With these catalysts nearing completion, we decided to exit our investment to fund the purchase of Oshkosh. As always, we will continue to study East West and, in the future, may once again find an opportunity to be investors.”

6. PacWest Bancorp (NASDAQ:PACW)

Number of Hedge Fund Holders: 33

P/E Ratio as of January 20: 5.59

PacWest Bancorp (NASDAQ:PACW) was founded in 1999 and is headquartered in Beverly Hills, California. It operates as the bank holding company for Pacific Western Bank that provides various banking products and services. PacWest Bancorp is one of the most undervalued stocks in the banking sector. 

On December 15, Wells Fargo analyst Jared Shaw downgraded PacWest Bancorp to Equal Weight from Overweight with a price target of $26, down from $32, as he believes shares are fairly valued at present levels. Additionally, shares typically do not perform well when there are heightened credit concerns, the analyst noted.

According to Insider Monkey’s Q3 data, 33 hedge funds were long PacWest Bancorp, compared to 35 funds in the last quarter. Amy Minella’s Cardinal Capital is the largest stakeholder of the company, with 4.3 million shares worth $98 million.

In addition to Comerica Incorporated, Citigroup Inc., and JPMorgan Chase & Co., PacWest Bancorp is one of the top banking stocks favored by elite hedge funds.

5. KeyCorp (NYSE:KEY)

Number of Hedge Fund Holders: 33

P/E Ratio as of January 20: 7.55

KeyCorp (NYSE:KEY) was founded in 1849 and is headquartered in Cleveland, Ohio. It is the holding company for KeyBank National Association, which provides retail and commercial banking products and services in the United States. KeyCorp operates in two segments – Consumer Bank and Commercial Bank. It is one of the most undervalued stocks in the banking sector. 

On January 19, KeyCorp reported a Q4 GAAP EPS of $0.38 and a revenue of $1.89 billion, falling short of Wall Street estimates by $0.16 and $40 million, respectively. The provision for credit losses of $265 million exceeded net charge-offs by $224 million. 

Deutsche Bank analyst Matt O’Connor on January 6 reiterated a Hold rating on KeyCorp and lowered the firm’s price target on the shares to $20 from $23. The analyst believes new lows seem possible for U.S. bank stocks. He assumes bank stocks will trade below their historical 60%-80% range, noting bank earnings may be peaking. 

According to Insider Monkey’s data, KeyCorp was part of 33 hedge fund portfolios at the end of September 2022, compared to 37 in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is the biggest stakeholder of the company, with 6.30 million shares worth $101 million. 

4. Comerica Incorporated (NYSE:CMA)

Number of Hedge Fund Holders: 45

P/E Ratio as of January 20: 9.24

Comerica Incorporated is a Texas-based company that provides various financial products and services. It operates through Commercial Bank, Retail Bank, Wealth Management, and Finance segments. Comerica Incorporated on January 19 reported a Q4 GAAP EPS of $2.58 and a revenue of $1.02 billion, outperforming Wall Street estimates by $0.03 and $10 million, respectively. The loans increased by $1.3 billion to $52.4 billion in the fourth quarter of 2022. It is one of the most undervalued bank stocks to invest in. 

On January 20, DA Davidson analyst Peter Winter raised the price target on Comerica Incorporated to $82 and maintained a Buy rating after the company’s Q4 earnings beat. He believes the stock’s forward earnings multiple assumption of 8.3-times is conservative and Comerica Incorporated’s long track record of best-in-class credit metrics should be positive for the company if the US economy enters a recession this year.

According to Insider Monkey’s Q3 data, 45 hedge funds were long Comerica Incorporated, up from 38 funds in the prior quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading position holder in the company, with 2.3 million shares worth $169 million. 

3. Citigroup Inc. (NYSE:C)

Number of Hedge Fund Holders: 85

P/E Ratio as of January 20: 6.94

Citigroup Inc. is an American multinational investment bank and financial services corporation that serves individuals, corporations, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa. Citigroup Inc. is one of the most undervalued stocks to buy according to hedge funds. 

On January 13, Citigroup Inc. reported Q4 non-GAAP earnings per share of $1.10, missing market estimates by $0.10. The revenue came in at $18 billion, topping Wall Street consensus by $30 million. Citigroup Inc. declared on January 12 a $0.51 per share quarterly dividend, in line with previous. The dividend is distributable on February 24, to shareholders of record on February 6. 

BofA analyst Ebrahim Poonawala on January 17 raised the price target for Citigroup Inc. to $60 from $52 and maintained a Buy rating on the shares. He praised management for navigating a period of extraordinary volatility while building capital, executing on consumer business exits, and mostly staying on track with executing on its strategic plan laid out last February. The analyst also sees potential catalysts, such as the sale of its Mexico retail bank Banamex and an event-free 2023 CCAR stress test, that could reinvigorate interest in the stock.

According to Insider Monkey’s data, Warren Buffett’s Berkshire Hathaway held the largest stake in Citigroup Inc. as of the end of September 2022, with more than 55 million shares worth $2.3 billion. 

In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Citigroup Inc. was one of them. Here is what the fund said:

“Shares of Citigroup Inc. declined in the quarter as investors became increasingly negative on capital markets activity. The company is also continuing to divest certain consumer banking geographies which may be dilutive to earnings in the near term.”

2. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Holders: 97

P/E Ratio as of January 20: 10.42

Bank of America Corporation is an American multinational investment bank and financial services holding company that caters to individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. Bank of America Corporation is one of the most undervalued bank stocks to invest in according to elite hedge funds. 

On January 13, Bank of America Corporation reported Q4 GAAP earnings per share of $0.85 and a revenue of $24.53 billion, outperforming Wall Street estimates by $0.08 and $360 million, respectively. Net interest income increased by $3.3 billion, or 29%, to $14.7 billion, supported by higher interest rates, lower premium amortization expense, and solid loan growth.

Citi analyst Keith Horowitz on January 17 raised the price target on Bank of America Corporation to $38 and maintained a Neutral rating on the shares. He was surprised to see the stock outperform on the earnings report despite negative sentiment heading into the Q4 season and the downside to the EPS consensus revisions. 

According to Insider Monkey’s third quarter database, 97 hedge funds were long Bank of America Corporation, compared to 99 funds in the earlier quarter. Harris Associates is a prominent stakeholder of the company, with 41.8 million shares worth $1.26 billion. 

Ariel Investment made the following comment about Bank of America Corporation in its Q3 2022 investor letter:

“We initiated three new positions in the quarter. We added leading financial institution Bank of America Corporation which serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The current company was formed through various mergers including NationsBank, FleetBoston, US Trust, Countrywide Financial, and Merrill Lynch with the legacy commercial bank to form a national banking powerhouse and bulge bracket investment firm. As one of the ‘Big Four’ U.S. banks it enjoys scale driven cost advantages and economies of scale which provide meaningful competitive advantages and potential for strong returns in the largely commoditized banking industry. A survivor of the financial crisis, BAC has emerged with a solid capital base and stands to benefit from a rising interest rate environment.”

1. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 110

P/E Ratio as of January 20: 11.15

JPMorgan Chase & Co. is a financial services company that operates through four segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset & Wealth Management. On January 13, JPMorgan Chase & Co. announced that it expects to resume stock buybacks this quarter and called $12 billion a “good number” for stock repurchases in 2023. JPMorgan Chase & Co. is one of the most undervalued bank stocks to monitor. 

On January 17, Citi analyst Keith Horowitz raised the firm’s price target on JPMorgan Chase & Co. to $165 from $150 and reiterated a Buy rating on the shares. The company’s updated guidance and latest earnings commentary helped alleviate the analyst’s concerns on expenses and capital. The analyst sees upward revisions to consensus estimates.

According to Insider Monkey’s Q3 data, 110 hedge funds were bullish on JPMorgan Chase & Co., compared to 104 funds in the prior quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is a significant position holder in the company, with 7.5 million shares worth $788 million. 

Here is what Vltava Fund has to say about JPMorgan Chase & Co. in its Q3 2022 investor letter:

“We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.

JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.

A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.”

Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily enewsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also check out 11 Best Dividend Stocks for Rising Interest Rates and 25 Wealthiest Countries in the World by GDP Per Capita. 

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originally published on Insider Monkey.