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August was an uneventful month for bank stocks, but that doesn't mean there weren't some big winners. The top performer climbed nearly 12%, while a handful of others closed in on 10%.
This table shows the 10 best performing bank stocks in August:
|
Name |
1 Month Price Returns |
|---|---|
|
Bank of America |
11.7% |
|
Citigroup |
9.3% |
|
Zions Bancorp |
8.8% |
|
Regions Financial |
8.7% |
|
PNC Financial |
7.5% |
|
Cullen/Frost Bankers |
7.2% |
|
Commerce Bancshares |
7.1% |
|
State Street |
6.9% |
|
People's United Financial |
6.8% |
|
KeyCorp |
6.8% |
Data source: YCharts.com.
This list is pulled from the KBW Bank Index, which tracks the performance of nearly two dozen of the nation's biggest bank stocks.
The average return on the index in August was 6%. Bank of America (BAC 0.41%) nearly doubled that, while Citigroup (C 0.41%), Zions Bancorp (ZION 0.17%), and Regions Financial (RF 1.26%) exceeded it by upwards of 50% or more.
What did these four stocks have in common?
The answer is that all four of them were hobbled during the financial crisis and have yet to fully recover. This is most apparent when you look at their profitability metrics.
A bank's after-tax earnings each year should be equal to at least 10% of its shareholders' equity. A bank that comes up short of this is said to be destroying shareholder value after you factor in the opportunity cost of foregoing alternative investments.
The four best performing bank stocks in August have not exceeded this benchmark consistently since the crisis. Over the past 12 months, Citigroup was the only one to earn more than 7% on its equity. Bank of America, Zions Bancorp, and Regions Financial each earned between 6.1% and 6.7%, according to data from YCharts.com.
The net result is that all of their shares trade for low valuations. In the bank industry, valuation is traditionally expressed as a percentage of book value, with higher quality bank stocks trading for premiums to book value while less profitable operations trade for discounts to book value.
In this case, all four of these banks are priced below book value. Citigroup has the lowest valuation, trading at a 35% discount. Bank of America isn't far behind at a 32% discount. Regions Financial and Zions Bancorp bring up the rear, at discounts of 25% and 10%, respectively.
The point is that all of these bank stocks are still riding the wave of recovery from the crisis. While others, such as Wells Fargo and JPMorgan Chase, saw their shares recover years ago, the four best performing banks stocks in August continued to benefit from this trend.
