Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. These institutions have benefited from improved net interest margins and robust credit growth, so it’s no surprise the banking industry has posted a 3.7% gain over the past six months while the S&P 500 was down 2.8%.
Regardless of these results, investors must exercise caution as many banks are sensitive to interest rate fluctuations and economic cycles. With that said, here is one bank stock boasting a durable advantage and two we’re steering clear of.
Two Bank Stocks to Sell:
Independent Bank (INDB)
Market Cap: $3.70 billion
Tracing its roots back to 1907 and serving as a financial cornerstone in New England for over a century, Independent Bank Corp. (NASDAQ: INDB) operates as the holding company for Rockland Trust, providing banking, investment, and financial services across Eastern Massachusetts and Rhode Island.
Why Are We Wary of INDB?
- Muted 8.2% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Incremental sales over the last two years were less profitable as its 1.3% annual earnings per share growth lagged its revenue gains
- Muted 3.8% annual tangible book value per share growth over the last two years shows its capital generation lagged behind its banking peers
At $76.26 per share, Independent Bank trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than INDB.
Wells Fargo (WFC)
Market Cap: $248.6 billion
Founded during the California Gold Rush in 1852 to provide banking and express delivery services to miners and merchants, Wells Fargo (NYSE: WFC) is a diversified financial services company that provides banking, lending, investment, and wealth management services to individuals and businesses.
Why Does WFC Fall Short?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Customers borrowered less money this cycle as its net interest income declined by 1.5% annually over the last five years
- Net interest margin dropped by 46.7 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market
Wells Fargo’s stock price of $80.39 implies a valuation ratio of 1.4x forward P/B. Check out our free in-depth research report to learn more about why WFC doesn’t pass our bar.
One Bank Stock to Buy:
Axos Financial (AX)
Market Cap: $4.87 billion
Originally founded as Bank of Internet USA in 1999 before rebranding in 2018, Axos Financial (NYSE: AX) is a diversified financial services company that provides digital banking, securities clearing, and investment advisory solutions to retail and business customers nationwide.
Why Are We Backing AX?
- Impressive 17.4% annual net interest income growth over the last five years indicates it’s winning market share this cycle
- Differentiated product suite is reflected in its Strong performance of its loan book is reflected in its High-yielding loan book and low cost of funds lead to a best-in-class net interest margin of 4.9%
- Share buybacks catapulted its annual earnings per share growth to 17.7%, which outperformed its revenue gains over the last five years
Axos Financial is trading at $86.00 per share, or 1.5x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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