NEW YORK (
) -- An analysis of the stocks underperforming a hot banking sector this year highlights some food for thought, while underlining the case that the largest U.S. bank stocks are dirt cheap.
KBW Bank Index
was up 24% year-to-date through the end of last week -- following a 25% drop during 2011 -- with some of the most familiar banking names bringing home stellar short-term returns for investors, since shares were trading way below book value at the end of last year.
Using data provided by HighlineFI, we have identified a select list of the five actively traded bank stocks that underperformed with year-to-date total returns of less than 10% through Thursday, trading at the lowest price multiples to forward earnings estimates. Most are smaller players, but one large regional name is included.
The first thing that will come to mind for many investors will be that this group probably underperformed last year. Two of the stocks actually posted positive returns during 2011, while the worst of the lot saw a relatively moderate decline of 12%.
While most of the five names trade for low multiples to book value, all trade at higher multiples to forward earning estimates than two of the largest U.S. bank holding companies, which are still trading at very significant discounts to book value, despite stellar year-to-date returns:
- Shares of Bank of America (BAC - Get Report) closed at $9.23 Thursday, returning 66% year-to-date, following a 58% tumble during 2011. The shares still trade for just 0.7 times the company's Dec. 30 tangible book value of $12.95, and for nine times the consensus 2013 EPS estimate of $1.05, among analysts polled by Thomson Reuters. The consensus first-quarter EPS estimate for Bank of America is 12 cents, with a full-year 2012 estimate of 68 cents.
- Citigroup (C - Get Report) closed at $34.79 Thursday, returning 32% year-to-date, following last year's 44% decline. Citi's shares are also heavily discounted, at just 0.7 times the Dec. 30 tangible book value of $49.81. The shares trade for eight times the consensus 2013 EPS estimate of $4.69. Analysts expect the company to post first-quarter EPS of 99 cents, and EPS of $4.09 for all of 2012.
Three of our select group of stocks underperforming the banking sector year-to-date trade at or below tangible book value, according to HighlineFI, while all five of them are more expensive to forward earnings than Bank of America and Citigroup, trading for between nine and 11 times consensus 2013 earnings estimates. But the way things are now shaping up for the sector, those valuations aren't particularly high.
Here's a look at all
five of the underperforming names
, in descending order, by year-to-date stock performance: