This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Discover Tops List of Cheapest Banks With Greatest Returns

NEW YORK (TheStreet) -- A deep data dive shows there are still bargain bank stocks out there, despite the industry's overall recovery over the past two years.

The KBW Bank Index (KBW) has returned 25% this year, following a 30% return during 2012.

It's getting harder for investors to identify bank stock bargains, and the continued political and regulatory onslaught against the largest U.S. banks is holding back their valuations. Shares of JPMorgan Chase (JPM) closed at $51.95 Tuesday and appear very cheaply priced at 8.6 times the consensus 2014 earnings estimate of $6.02 a share among analysts polled by Thomson Reuters. But the company booked a net loss for the third quarter as it set aside litigation reserves and may see another rocky quarter or two over the next year, as it seeks to make multiple settlements with the Department of Justice, regulators and investors.

Many investors will shy away from JPMorgan because of the regulatory uncertainty. They may well be missing out on a bargain long-term play.

For these investors, looking to avoid negative surprises, we have isolated the U.S. banks that have achieved returns on average tangible common equity of over 15% for each of the past five quarters and that trade at the lowest forward price-to-earnings ratios. The data was provided by Thomson Reuters Bank Insight, and was limited to banks for which third-quarter data was available and for which a consensus 2014 EPS estimate was available.

We used returns on average tangible common equity (ROTCE) in order to leave out intangible assets, such as goodwill, and to leave out earning paid out to preferred shareholders.

We have identified 11 actively traded U.S. bank holding companies achieving ROTCE of over 15% over each of the past five quarters. This approach excludes many possible bargains; however, some of the names are attractively priced when considering the strong returns, relatively low risk and prospect for EPS improvement through share buybacks and increased dividends as excess capital is deployed.

Among this group, Discover Financial Services (DFS) has the lowest forward price-to-earnings ratio. The company's shares closed at $51.92 Tuesday and traded for 10.2 times the consensus 2014 EPS estimate of $5.07.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,982.59 +22.02 0.13%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs