Banking Bargains: 3 Value Stock Picks for Savvy Investors

Stocks to buy

Bank stocks have danced to a relatively volatile rhythm over the past year, with market downturns and growing withdrawals having orchestrated a rather challenging environment. However, there’s more to the U.S. banking sector’s symphony than meets the eye. Despite facing a myriad of challenges, including slowing loan growth due to pricey borrowing, rising deposit costs, and climbing treasury yields, there’s a silver lining. High benchmark interest rates are growing U.S. banks’ net interest income and margins, which bodes well for banking value stocks.

Moreover, stricter lending norms and credit rating downgrades are painting a not-so-rosy picture, but here’s where discerning investors can hit a high note. Here’s a look at three banking value stocks that are trading at compelling discounts relative to their 10-year PE median. So, for investors looking to harmonize their portfolios with resilient performers, let’s take a look at these options in bank stocks.

BNP Paribas (BNPQY)

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BNP Paribas (OTCMKTS:BNPQY) is a titan of the eurozone banking sphere, which recently delivered another robust second quarter showing. Despite a securities trading dip, its corporate debt engine roared to life, complemented by strategic cost reduction, leading to a modest 4.9% dip in net income to €2.81 billion. Yet, it defied expectations, surpassing the €2.49 billion forecast.

With group revenue ticking down just 1.5% to €11.4 billion, the real headline is the lower-than-anticipated cost of risk, at €689 million, showcasing BNP’s effective risk management. Amidst inflation worries, their confirmed 2025 targets and cost control abilities effectively draw nods of approval, notably from the Royal Bank of Canada (NYSE:RY). Moreover, in a shaky retail sector, BNP stands unyielding. Its diversified prowess, coupled with a compelling 1.4 times forward sales valuation, cements its appeal in the financial landscape.

DBS Group Holdings ADR (DBSDY)

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DBS Group Holdings ADR (OTCMKTS:DBSDY), crown jewel in banking, blew past expectations with a staggering 45% surge in net profit in the second quarter, driving ROE to an enviable 19.2%. The first half of 2023 wasn’t just good – it was historic. The company boasted a net profit of S$5.26 billion, up 45% year-over-year. What’s eye-catching is the leap in interest income skyrocketed from $2.45 billion in Q2 2022 to a hefty $3.43 billion this year.

For those with an appetite for income stocks, there’s the specter of stagnation or decline if economic turmoil strikes. However, DBS has proven to effectively navigate through market turmoil, promising stability through economic ebbs and flows. Trading at a compelling 4.3 times forward sales with a generous 5.2% yield and an annual payout of $1.25 trailing twelve months, DBS stands out as a stellar value play among bank stocks.

Citigroup (C)

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Citigroup’s (NYSE:C) third-quarter narrative echoes a crescendo of strategic triumphs. Even with an initial post-announcement stock dip, the bank’s sales painted a stellar picture at $20.1 billion, up 4% quarter-over-quarter. The real applause, though, is for the net income – a whopping $3.5 billion, soaring 22% on a quarterly basis. Additionally, its shareholders had their day in the sun, reaping $1.5 billion through dividends and buybacks, while the earnings per share clocked in at a solid $1.63.

Dig deeper, and the stars of the show were the Institutional Clients Group (ICG) and Global Consumer Banking (GCB) divisions. The former celebrated its highest revenue quarter in a decade. Looking ahead, Citigroup sets its sights on a 5% CAGR, banking on enriched client ties and market trend exploitation. As for profitability, its targets are rather ambitious but achievable, with an 11% to 12% return on total capital, anchored by its eye on trimming operational redundancies and reaping the rewards from its current wave of strategic overhauls.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

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