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My screen for possible undervalued stocks — what they sometimes describe on Wall Street as “cheap” — is finding 4 bank stocks that come in under stated book value and which trade for unusually low price/earnings ratio. There’s a lot more to consider when analyzing these types of situations, but those are the basic starting metrics that help to uncover value. Here’s what’s coming up on the screen:
Citigroup. The big money center banking operation is trading at an 8% discount to book right now and the price/earnings ratio is 11. That p/e is not all that low for a financial stock, but it’s substantially below the p/e for the market taken as a whole, so I’m including it.
Citigroup chart
Citigroup has been persistently declining since it peaked in late January at 80 — the price is now 68, a 15% drop in not quite 4 months. Deutsch Bank analysts just upgraded the stock from “hold” to “buy” saying that the recent weakness is attributable to temporary factors. Citi has a solid 5-year record of positive earnings and pays a 1.9% dividend.
Banco Bilbao Vizcaya Argentaria, S.A. is headquartered in Spain, has operations in 30 countries around the world including extensively in Mexico. The stock can be purchased today at an 8% discount to book value and the price/earnings ratio is 11 — so those metrics are similar to Citigroup’s, mentioned above.
Banco Bilbao chart.
It’s also experienced a similar decline in price — from late January’s high of 9.5 to today’s 6.92. The bank’s earnings were in the red last year but the 5-year track record remains solidly positive. They are paying a 10.7% dividend. HSBC Securities has them on their “buy” list — Societe General recently moved moved the bank from “sell” to “hold.”
Banco Santander, S.A. is another global banking firm with headquarters in Spain. The price/earnings ratio is 10.9 and they’re trading at 84% of book value. Like the other banks mentioned here, this one has declined significantly from the end of January.