Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 10.3% gain has fallen behind the S&P 500’s 14.3% rise.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one bank stock boasting a durable advantage and two we’re steering clear of.
Two Bank Stocks to Sell:
Trustmark (TRMK)
Market Cap: $2.34 billion
Tracing its roots back to 1889 in Mississippi, Trustmark (NASDAQ:TRMK) is a financial services organization providing banking, wealth management, insurance, and mortgage services across five southeastern states.
Why Are We Hesitant About TRMK?
- Muted 8.6% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Overall productivity is expected to decrease over the next year as Wall Street thinks its efficiency ratio will degrade by 1.7 percentage points
- Underwhelming 7.2% return on equity reflects management’s difficulties in finding profitable growth opportunities
Trustmark’s stock price of $39.12 implies a valuation ratio of 1.1x forward P/B. To fully understand why you should be careful with TRMK, check out our full research report (it’s free for active Edge members).
First Horizon (FHN)
Market Cap: $11.22 billion
Tracing its roots back to 1864 during the Civil War era, First Horizon (NYSE:FHN) is a Tennessee-based bank holding company that provides commercial and consumer banking, wealth management, and specialty financial services across multiple states.
Why Does FHN Fall Short?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Estimated net interest income growth of 1.8% for the next 12 months implies demand will slow from its five-year trend
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.7% annually
First Horizon is trading at $22.75 per share, or 1.3x forward P/B. If you’re considering FHN for your portfolio, see our FREE research report to learn more.
One Bank Stock to Buy:
Axos Financial (AX)
Market Cap: $4.82 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?
- Annual net interest income growth of 17.6% over the last five years was superb and indicates its market share increased during 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 result in a best-in-class net interest margin of 4.8%
- Share repurchases over the last five years enabled its annual earnings per share growth of 18.1% to outpace its revenue gains
At $85.16 per share, Axos Financial trades at 1.5x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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