The stock market is enjoying a major winning streak this year. With many equities seeing large gains, value investors might be wondering if any discounted stocks are even left to buy. Thankfully, bank stock bargains are waiting for investors to snatch them up today.
The benchmark SPDR S&P Regional Banking ETF (NYSE:KRE) is down 17% year to date. Even after the recent bounce, bank stocks remain on sale. And for these value bank stock investments in particular, compelling opportunities exist today with all three trading down more than 25% year to date.
Keycorp (KEY)
Keycorp (NYSE:KEY) is one of America’s larger regional banks, and one which has been significantly impacted by the current industry downturn. KEY stock is off almost 30% year to date, which is a loss well in excess of the median decline within its peer group.
Keycorp’s net interest income has fallen significantly as it struggles to piece together a strategy for dealing with the abrupt swing in interest rates. The firm’s recent Q2 earnings once again fell short of analyst expectations, and the outlook seems rather pessimistic through the end of 2023.
However, the downturn may reverse sooner than traders expect. Morningstar’s Eric Compton noted that Keycorp has interest rate hedges that have impacted near-term performance.
“Some of the current headwinds should reverse as its hedges roll off in a more material way throughout 2024. This headwind reversal should be unique among our coverage,” Compton states.
This unique catalyst should help turn things around for KEY stock heading into 2024. Additionally, Keycorp has an investment banking business which is a rarity among regional banks. Thus, it was negatively affected by the downturn in IPOs and merger activity in 2022. With markets soaring now, however, deals should come back, giving another big boost to Keycorp’s bottom line.
In short, Keycorp should move from being an industry laggard to firm leader over the next year, leading to a dramatic revaluation in Keycorp’s stock price as well.
Bank of Hawaii (BOH)
Bank of Hawaii (NYSE:BOH) is one of the few banks serving the Hawaiian market, which is its unique strategic advantage.
Bank of Hawaii and First Hawaiian (NASDAQ:FHB) together make up two-thirds of the entire Hawaii banking market, and five banks constitute fully 97% of the island’s deposits. Simply put, due to its relatively small size and geographic isolation, the mainland American banks haven’t invested in Hawaii, leaving a unique opportunity for homegrown firms.
This led to an interesting situation for BOH stock in 2023. Shares collapsed in March due to the widespread industry fears about deposit flight and losses on loan securities. Like many other financial institutions, Bank of Hawaii does indeed have significant unrealized losses on its loan securities book.
However, those losses typically only matter if there is a deposit run against the bank, forcing it to raise capital. In the case of Bank of Hawaii, deposits have been stable despite all the negative press. Given the lack of competition in Hawaii, it’s unclear where else folks might turn. As a result, customers have stayed loyal.
This sets the stage for a tremendous recovery at Bank of Hawaii. Earnings maintain strength. The company will be able to shore up its balance sheet with operating profits, and investors are getting an opportunity to own this leading island franchise at a sharp discount.
Glacier Bancorp (GBCI)
Glacier Bancorp (NASDAQ:GBCI) has been one of the all-time greatest bank stock investments in the United States. Forty years ago, adjusted for stock splits, shares traded around 30 cents each. Nowadays, the stock goes for more than $30. In addition to making more than 10,000% on stock price alone, Glacier also pays out fat dividends.
The bank has suffered a rare setback in 2023, however. Shares are off more than 30% year to date as investors reassess the firm’s strategic positioning in light of the changing interest rate environment.
Historically, Glacier has been successful due to its relentless M&A approach. It has been snatching up banks throughout the Rocky Mountain region for decades. Like Bank of Hawaii, Glacier enjoys a geographic advantage as it serves many smaller and more rural markets. Larger banks simply aren’t going to invest their resources to compete.
Glacier has typically benefitted from a loyal deposit base allowing it to pay very low interest rates on its savings products. Investors feared that Glacier’s profitability would collapse in 2023 as depositors demanded far higher rates on their savings.
While Glacier has indeed seen its profitability slip, net income only dropped 10% in Q2 from the prior quarter. Meanwhile, the deposit base still held strong. This was far short of the catastrophe that short sellers had been anticipating. And so, these upbeat results should pave the way for GBCI stock to return to its usual upward trajectory.
On the date of publication, Ian Bezek held a long position in GBCI stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.