Bank on it
It’s a good time to look for bargains amongst bank stocks. As a whole, they’re finally cheap
It’s been a tough decade for banks. Regulations and low interest rates have made it hard to earn fat profits like they did in the good old days. These companies have, in some ways, come to resemble utilities. Their business models and profits are under the heavy thumb of regulators. As a result, their stocks have gone nowhere. The S&P global bank index has risen an impotent 18% since 2014—how embarrassing. However, over that time, banks have squirrelled away capital. They’re bigger and safer than they’ve ever been, and they’re earning consistent returns on that capital. So, is it time to consider looking at bank stocks again? Absolutely. As a group, bank stocks finally look cheap.
The global banking industry looks cheap on a discounted cash flow basis. According to 𝑉𝑎𝑙𝑢𝑎𝑏𝑙’s model, the 120 largest banks in the world are worth $7.7trn. That’s a 35% premium to the current $5.7trn market price to buy them. This model used aggregate returns on equity and reinvestment to forecast cas…