U.S. Bank Stock Portfolio II: Flat at -0.58% After One Month

by Gene Kirsch, Senior Banking Analyst | November 28, 2012

See also: Weiss Ratings Series – U.S. Bank Portfolio

With the success of our first portfolio of undervalued domestic bank stocks and the turnaround in the banking sector in general, a new, more stringent set of criteria was used to identify the next list of undervalued U.S. bank stocks. All stocks in the new portfolio meet or exceed the minimum criteria outlined last month.

Other selection criteria include comparing several ratios among the banks: price to book, price to tangible book, current price to 52-week high, forecasted EPS and price target. The table below represents the best selections of all 1,159 publicly traded U.S. banks.

Institution Name Ticker

City

State Weiss Financial Strength Rating1 Stock Price as of 10/26/12

Current
Price

11/23/12
% Change from 10/26/12 to 11/23/12
Bank of America Corporation BAC Charlotte NC          C- 9.12 9.90 8.55%
Bank of New York Mellon Corp. BK New York NY          C 24.37 24.43 0.25%
Citigroup Inc. C New York NY          C+ 36.60 36.03 -1.56%
JPMorgan Chase & Co.2 JPM New York NY          D+ 41.16 41.09 -0.17%
KeyCorp KEY Cleveland OH          B- 8.39 8.45 0.72%
MainSource Financial Group, Inc. MSFG Greensburg IN          C+ 12.23 11.99 -1.96%
Oriental Financial Group, Inc. OFG San Juan PR          C- 11.77 11.91 1.19%
PNC Financial Services Group, Inc. PNC Pittsburgh PA          C- 57.76 55.75 -3.48%
Regions Financial Corp. RF Birmingham AL          C 6.58 6.69 1.67%
SunTrust Banks, Inc. STI Atlanta GA          C- 27.10 27.48 1.40%
Undervalued Portfolio         235.08 233.72 -0.58%
S&P Regional Banking ETF KRE       27.89 27.86 -0.11%
KBW Banking Index BKX       49.25 49.17 -0.16%
S&P Banking Index BIX       157.81 155.18 -1.67%
S&P 500 Index $INU       1,411.94 1,409.15 -0.20%
DOW $INDU       13,107.21 13,009.68 -0.74%

1Weiss Financial Strength rating is based on Q2 2012 data; A=Excellent; B=Good; C=Fair; D=Weak;
  E=Very Weak; Plus sign=top of grade range; Minus sign=bottom of grade range
2JPMorgan Chase & Co. has a financial strength rating of B- (Good) despite the operating company's
  rating of D+ (Weak)

The value of the basket of ten stocks is basically flat, down just 0.58 percent for the first month on increased average 30-day volume of 27.4 million shares, up 2.39 percent.

It is still reasonable to expect that the returns of this new basket will exceed the broader market and banking benchmarks, all of which were also down in November. The S&P Regional Banking ETF (KRE), which contains many of the largest U.S. regional banks, was the best performing index—down just 0.11 percent. The worst performer was the broader S&P Banking Index, a basket of all banks in the S&P 500 Index, which was down 1.67 percent.

After one month, six of the ten banks are still up despite the tough economic environment and the threat of the fiscal cliff. The stellar performers in the group were Bank of America Corp. (BAC), up 8.55 percent, and to a lesser degree, Regions Financial Corp. (RF), up 1.67 percent, and SunTrust Banks, Inc. (STI), up 1.40 percent. The biggest loser of the group was PNC Financial Services Group (PNC), which was down 3.48 percent. 

Of the five holdovers from the first portfolio (in bold print above), three of the five were up in the first month of this new portfolio:  Bank of America Corp. (BAC), KeyCorp (KEY) and SunTrust Banks, Inc. (STI).

None of the banks in this list have reached either their 12-month price target or book value. Although all banks are still an exceptional value, some of the best values are JPMorgan Chase (JPM), Citigroup (C) and PNC Financial Services Group (PNC), which are only at 68 percent, 69 percent and 74 percent of their price targets, respectively. The current average stock price in the portfolio is at 77 percent of the group’s aggregate price target. So, there is still some room for price appreciation in the portfolio going forward—even more so, if you consider the group’s aggregate price to book ratio is only 73 percent.

See also:
Weiss Ratings’ Portfolio of High-Dividend Paying Bank Stocks
U.S. Bank Stock Portfolio: New Domestic Portfolio Designed to Repeat Stellar Performance
Get unlimited access to Weiss Ratings Reports

To review bank performance, see Weiss Ratings’ complete lists of the strongest and weakest banks at www.weissratings.com/banklists.

Gavin Magor

Gene Kirsch, senior banking analyst at Weiss Ratings, has more than 20 years of financial industry experience in credit-risk management, commercial lending and loan review analysis within various sized credit unions, finance companies and banks at both the retail and commercial level. He leads the firm's bank and thrift ratings division and developed the methodology for Weiss' credit union ratings and global bank ratings.