Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have caused the industry to lag recently as banking stocks have collectively shed 10.6% over the past six months. This performance was especially disheartening since the S&P 500 held its ground.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Keeping that in mind, here is one bank stock poised to generate sustainable market-beating returns and two we’re passing on.
Two BankStocks to Sell:
Ready Capital (RC)
Market Cap: $775.8 million
Operating as one of only 17 non-bank Small Business Lending Companies with preferred lender status from the SBA, Ready Capital (NYSE: RC) is a multi-strategy real estate finance company that originates, acquires, and services commercial real estate loans, small business loans, and other real estate investments.
Why Do We Avoid RC?
- Sales tumbled by 18% annually over the last two years, showing market trends are working against its favor during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 17.8% annually while its revenue grew
- Loan losses and capital returns have eroded its tangible book value this cycle as its tangible book value per share declined by 6.5% annually over the last five years
Ready Capital’s stock price of $4.54 implies a valuation ratio of 0.4x forward P/B. If you’re considering RC for your portfolio, see our FREE research report to learn more.
Truist Financial (TFC)
Market Cap: $53.34 billion
Born from the 2019 merger of BB&T and SunTrust in one of the largest banking combinations since the 2008 financial crisis, Truist Financial (NYSE: TFC) is a bank holding company that offers a wide range of financial services including consumer and commercial banking, wealth management, insurance, and lending solutions.
Why Does TFC Worry Us?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual net interest income increases of 1.4% for the last four years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Annual interest expenses are high relative to its profits, increasing the probability of its failure to meet certain borrowing obligations
Truist Financial is trading at $40.71 per share, or 0.9x forward P/B. To fully understand why you should be careful with TFC, check out our full research report (it’s free).
One Bank Stock to Watch:
East West Bank (EWBC)
Market Cap: $13.13 billion
As the largest independent bank in the U.S. focused on bridging financial services between America and Asia, East West Bancorp (NASDAQ: EWBC) operates a commercial bank that provides personal and business banking services with a unique focus on facilitating U.S.-Asia cross-border transactions.
Why Could EWBC Be a Winner?
- Impressive 14% annual net interest income growth over the last four years indicates it’s winning market share this cycle
- Share repurchases over the last five years enabled its annual earnings per share growth of 12.2% to outpace its revenue gains
- Annual tangible book value per share growth of 11.6% over the last five years was superb and indicates its capital strength increased during this cycle
At $95.38 per share, East West Bank trades at 1.5x forward P/B. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
