We recently compiled a list of the 7 Cheap Bank Stocks To Invest In Before They Take Off. In this article, we are going to take a look at where Shinhan Financial Group Co., Ltd. (NYSE:SHG) stands against the other cheap bank stocks.
Banking Sector Outlook 2025
On December 10 Fidelity Investment released its banking sector outlook for 2025, highlighting tailwinds for the sector which can result in positive momentum for the year. According to Matt Reed, the Fidelity Sector Portfolio Manager, the financial sector experienced significant growth in 2024. The industry is reported to have increased by over 30% as of mid-December, outperforming the broader S&P 500 index by 5 percentage points. As per the analysts, the surge was driven by the post-election boost and improved economic conditions. Reed highlighted that despite the concerns such as the collapse of several small-to-mid-sized banks at the beginning of 2024. The market perceived these issues as isolated rather than a wider crisis, thereby allowing the economic strength to overshadow these challenges quicker than anticipated.
Matt Reeds noted that the financial sector is expected to remain on solid ground in 2025, driven by steady US economic growth. The cyclical nature of financial stocks means their performance is closely linked to the broader economy, which is showing signs of resilience and a potential soft landing. Fidelity Investment identified that larger institutions are expected to potentially recover from past regulatory issues and capitalize on improved market conditions. Moreover, regional banks with strong credit quality and strategic acquisitions are also expected to increase their market shares. Lastly, payment processing companies and financial technology companies are also expected to thrive due to their sensitivity to economic activity and consumer spending patterns.
The report highlighted that while the outlook is optimistic there are some inherent risks including further interest rate cuts, which could compress net interest margins for banks, impacting profitability. In addition, some banks may face challenges related to their commercial real estate holdings if economic conditions worsen, leading to weaker loan demand and increased nonperforming loans.
Our Methodology
To compile the list of 7 cheap bank stocks to invest in before they take off, we used the Finviz stock screener, Seeking Alpha, and Yahoo Finance. Using the screener we aggregated an initial list of bank stocks trading under a Forward P/E of 15 with positive earnings growth and analyst upside potential of at least 25%. Next, we cross-checked the Forward P/E for each stock from Seeking Alpha, earnings growth from Yahoo Finance, and analyst upside potential from CNN. Lastly, we ranked the stocks in ascending order of the analyst upside potential. Please note that the data was collected on January 31, 2025.
Why do we care about what hedge funds do? 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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Shinhan Financial Group Co., Ltd. (NYSE:SHG)
Earnings Growth: 1.87%
Forward P/E Ratio: 5.61
Analyst Upside Potential: 48.04%
Shinhan Financial Group Co Ltd. (NYSE:SHG) is a major financial services company based in South Korea. It is recognized as one of the largest financial conglomerates in the country. The group provides a range of services including banking, credit cards, investment, and insurance services.
The group recently faced challenges, particularly due to significant losses incurred by its securities division. It reported a loss of KRW 135.7 billion in the third quarter of 2024 due to issues related to trading operations at Shinhan Securities, specifically involving futures contracts that were not aligned with their hedging strategies. Management noted that they are actively working to diagnose the root causes of the losses and improve oversight.
Looking ahead, Shinhan Financial Group Co Ltd. (NYSE:SHG) is focused on improving qualitative growth through Return on Equity and Return on Assets. The company aims for an ROE of 13% by 2025, which involves optimizing how it allocates its assets and resources. This strategy includes prioritizing high-growth areas such as corporate lending and digital banking, while also working on improving operational efficiency and reducing costs to achieve these targets. It is one of the cheap bank stocks to invest in before they take off.
Polaris Global Equity Strategy stated the following regarding Shinhan Financial Group Co., Ltd. (NYSE:SHG) 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.”
Overall SHG ranks 2nd on our list of the cheap bank stocks to invest in before they take off. While we acknowledge the potential of SHG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an 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.
Disclosure: None. This article is originally published at Insider Monkey.