This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities. I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.
Despite a turbulent week, regional bank stocks are starting to show some life and are selectively attracting value investors.
Many of them are now selling below their tangible book value per share (TBVPS). That metric deducts all liabilities from the assets, as well as deducts all non-tangible assets, such as goodwill, patents, and other intangible assets. It makes a metric that approximates a liquidation value (with no forced sale of its assets) for the banks on a per-share basis.
Western Alliance Bancorporation (WAL)
For example, Western Alliance Bancorporation (WAL) closed at $31.32, compared to its TBVPS of $40.25 per share, as of Dec. 2022. However, it's likely that the TBVPS has fallen during the quarter, so investors won't have an accurate read on this metric until late April or so.
As I wrote earlier this week, WAL stock received a vote of confidence from Citadel Advisors (Ken Griffin's hedge fund). The bank has not said it will cut its dividend, so the dividend yield is now 4.60%. Moreover, some investors are looking at its preferred stock (WAL-PA) which pays a $1.0625 preferred dividend, giving the stock a 9.4% dividend yield.
New York Community Bank (NYCB)
Another regional bank stock that has been in the news is New York Community Bancorp (NYCB), which closed at $6.54, on March 17.
Its tangible book value is $8.85 per share. But again, this is likely to be significantly lower by the end of the quarter. Nevertheless, as it stands, NYCB stock is trading at just under three-fourths of its TBVPS.
Moreover, the stock pays a quarterly dividend of 17 cents per share, giving it an annual dividend yield of 10.39%. Moreover, the company also has a preferred stock (NYCB-PA) with a dividend yield of 10.1%.
Comerica Inc (CMA)
Comerica (CMA) is a Dallas-based regional bank that has a TBVPS of $52.47, according to Seeking Alpha, whereas CMA stock closed at $43.59. So, it's trading for just 83% of its TBVPS.
Moreover, the bank pays a quarterly dividend of 71 cents, which was recently raised to that level ($2.84 annually). That gives CMA stock an annual dividend yield of 6.52%.
Moreover, last year the bank earned $8.47 per share. That puts it on a historical price multiple of 5.1x. But analysts are projecting that it will make $9.66 per share. That gives it a forward multiple of 4.5x.
This multiple is so low it is well below its historical P/E multiple of 11.8x, according to Morningstar, and even the average multiple in 2022 of 6.58x.
Summary - Bargain Purchases and Margin of Safety
These three bank stocks are trading well below their tangible values, which is the value investors would receive if the bank were to be liquidated.
The fact that there is a discount between these tangible book values and the stock price leaves a good margin of safety in case the net liquidation value is actually even lower.
In other words, these stocks are being as if they won't survive, even though for the time being there is every reason to believe they will be OK. For example, a UBS analyst recently put these three stocks in the top tier of regional bank stocks in which investors should consider investing.
Moreover, investors in these stocks or their preferred shares are getting well paid to wait until the stocks rise back to their normal valuation levels.
This is typically how value investors like to look at equity investment opportunities. Granted, there is a good deal of risk here. For example, all banks operate on a leveraged basis. Their assets are 10x or greater than their equity values, with deposits making up the majority of their liabilities.
As a result, this is not for the normal type of investor who may want to avoid any type of risk. But the risks bring rewards and potential upside, especially if the stocks rise to their TBVPS levels or higher.
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Mark R. Hake, CFA, writes articles on national and local news, stocks, and market events at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as TalkMarkets.
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