NEW YORK (TheStreet) -- Puerto Rico's Governor Alejandro Garcia Padilla says the island's debts of more than $70 billion are "not payable." He says the commonwealth is in a "death spiral." Per capita, Puerto Rico has built up more municipal bond debt, than any U.S. state. According to Nick Timiraos in the Wall Street Journal, the commonwealth's $72 billion debt amounts to almost 70% of the island's economic output.

Investors have questions: Will Puerto Rico be able to stop the bleeding? Who will bail out the commonwealth? How will it recover? Will the banks shut down like in Greece? Speaking of the banks, we used TheStreet Ratings,TheStreet's proprietary ratings tool to see how investors should play the three publicly traded Puerto Rico banks.

The answer? Don't buy. 

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which Puerto Rican banks made the list. And when you're done, be sure to read about which volatile aerospace and defense stocks to buy now. Year-to-date returns are based on June 26, 2015, closing prices. The highest-rated stock appears last.

OFG ChartOFG data by YCharts
3. OFG Bancorp (OFG)

Rating: Hold, C+
Market Cap: $590 million
Year-to-date return: -15.6%

OFG Bancorp, a financial holding company, provides various banking and financial services primarily in Puerto Rico. It operates in three segments: Banking, Wealth Management, and Treasury.

"We rate OFG BANCORP (OFG) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • OFG, with its decline in revenue, underperformed when compared the industry average of 0.0%. Since the same quarter one year prior, revenues fell by 11.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 47.70% is the gross profit margin for OFG BANCORP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, OFG's net profit margin of -2.62% significantly underperformed when compared to the industry average.
  • Net operating cash flow has decreased to $34.17 million or 15.94% when compared to the same quarter last year. Despite a decrease in cash flow OFG BANCORP is still fairing well by exceeding its industry average cash flow growth rate of -37.23%.
  • OFG BANCORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, OFG BANCORP reported lower earnings of $1.50 versus $1.74 in the prior year. For the next year, the market is expecting a contraction of 32.7% in earnings ($1.01 versus $1.50).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Commercial Banks industry. The net income has significantly decreased by 112.6% when compared to the same quarter one year ago, falling from $23.75 million to -$2.99 million.

BPOP ChartBPOP data by YCharts
2. Popular, Inc. (BPOP)

Rating: Hold, C
Market Cap: $3.2 billion
Year-to-date return: -3.3%

Popular, Inc., through its subsidiaries, provides various retail and commercial banking products and services primarily to institutional and retail customers. The company accepts various deposit products.

"We rate POPULAR INC (BPOP) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for POPULAR INC is currently very high, coming in at 82.80%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, BPOP's net profit margin of 14.80% significantly trails the industry average.
  • POPULAR INC has improved earnings per share by 10.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, POPULAR INC swung to a loss, reporting -$1.88 versus $5.49 in the prior year. This year, the market expects an improvement in earnings ($3.37 versus -$1.88).
  • BPOP, with its decline in revenue, slightly underperformed the industry average of 0.0%. Since the same quarter one year prior, revenues slightly dropped by 1.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Net operating cash flow has significantly decreased to -$9.83 million or 106.14% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Commercial Banks industry and the overall market, POPULAR INC's return on equity significantly trails that of both the industry average and the S&P 500.
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FBP ChartFBP data by YCharts
1. First BanCorp. (FBP)
Rating: Hold, C
Market Cap: $1.3 billion
Year-to-date return: 9.5%

First BanCorp. operates as the bank holding company for FirstBank Puerto Rico that provides a range of financial products and services to retail, commercial, and institutional clients.

"We rate FIRST BANCORP P R (FBP) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Banks industry. The net income increased by 50.1% when compared to the same quarter one year prior, rising from $17.08 million to $25.65 million.
  • The gross profit margin for FIRST BANCORP P R is rather high; currently it is at 65.18%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, FBP's net profit margin of 14.93% significantly trails the industry average.
  • FBP, with its decline in revenue, slightly underperformed the industry average of 0.0%. Since the same quarter one year prior, revenues slightly dropped by 0.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • FIRST BANCORP P R reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, FIRST BANCORP P R turned its bottom line around by earning $1.86 versus -$0.80 in the prior year. For the next year, the market is expecting a contraction of 81.7% in earnings ($0.34 versus $1.86).

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