Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 18.1% gain for the banking industry over the past six months - 8.3 percentage points higher than the S&P 500.
Nevertheless, investors should tread carefully as many banks are cyclical due to their exposure to credit risk and regulatory changes. On that note, here are three bank stocks we’re steering clear of.
PennyMac Mortgage Investment Trust (PMT)
Market Cap: $1.08 billion
Operating as a real estate investment trust since 2009 to maintain tax advantages, PennyMac Mortgage Investment Trust (NYSE: PMT) is a specialty finance company that invests in mortgage-related assets and operates a correspondent lending business.
Why Do We Think PMT Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 23.1% annually over the last five years
- Sales were less profitable over the last two years as its earnings per share fell by 22% annually, worse than its revenue declines
- Tangible book value per share tumbled by 5.4% annually over the last five years, showing banking sector trends are working against its favor during this cycle
At $12.40 per share, PennyMac Mortgage Investment Trust trades at 0.8x forward P/B. Check out our free in-depth research report to learn more about why PMT doesn’t pass our bar.
Northwest Bancshares (NWBI)
Market Cap: $1.96 billion
Founded in 1896 and operating across Pennsylvania, New York, Ohio, and Indiana, Northwest Bancshares (NASDAQ: NWBI) is a bank holding company that operates Northwest Bank, providing personal and business banking, investment management, and trust services.
Why Should You Dump NWBI?
- Sales trends were unexciting over the last five years as its 4.4% annual growth was below the typical banking company
- Annual net interest income growth of 6% over the last five years was below our standards for the banking sector
- 2.5% annual tangible book value per share growth over the last two years was slower than its banking peers
Northwest Bancshares’s stock price of $13.44 implies a valuation ratio of 1x forward P/B. If you’re considering NWBI for your portfolio, see our FREE research report to learn more.
Flagstar Financial (FLG)
Market Cap: $5.83 billion
Tracing its roots back to 1859 and rebranded from New York Community Bancorp in 2024, Flagstar Financial (NYSE: FLG) is a bank holding company that offers commercial and consumer banking services, with specialties in multi-family lending, mortgage originations, and warehouse lending.
Why Are We Out on FLG?
- Net interest income trends were unexciting over the last five years as its 9.4% annual growth was below the typical banking firm
- Operational productivity has decreased over the last four years as its efficiency ratio worsened by 51.7 percentage points
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 16.4% annually while its revenue grew
Flagstar Financial is trading at $14.13 per share, or 0.8x forward P/B. Read our free research report to see why you should think twice about including FLG in your portfolio.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
