Three Undervalued and Overlooked Banks

NEW YORK (TheStreet) -- The rally in U.S. bank stocks has made the industry riskier for investors who only consider the best-known names.

Does anyone have the guts to buy Bank of America(BAC) shares now that the price-to-earnings ratio has shot up to 67.6? Or Fifth Third(FITB) at, gulp, 118.9? Even BB&T(BBT) stands at 24.5. The banking sector as a whole is selling for a bit more than 21, which is more than the benchmark S&P 500 Index of U.S companies.

Smart investors should look farther afield for bargains. Here are three -- out of more than 1,000 publicly traded U.S. bank and thrift holding companies -- that came out as winners: Comerica(CMA) of Dallas, United Financial Bancorp(UBNK) of West Springfield, Mass., and Westfield Financial(WFD) of Westfield, Mass.

Here are the criteria, using data provided by SNL Financial:

Price-to-tangible-book-value ratio below 1 as of Oct. 16; three-month average trading volume greater than 50,000 shares; nonperforming assets below 2.5% of total assets; net interest margin greater than 2.5%; positive return on average assets for 2008; and positive return on average assets for the first half of 2009.

We used information mainly from second-quarter filings, since most U.S. holding companies haven't yet announced third-quarter results. Returns on average assets (ROA) are based on net income before dividends paid on preferred stock issued to the Treasury for capital infusions via the Troubled Asset Relief Program (TARP).

Comerica

By far the largest and best-known among the three banks that meets the criteria is Comerica, which relocated to Texas from Detroit in 2007. It had $60 billion in total assets as of Sept. 30 and does business in its home state, Michigan, California and Florida.