Q: Many bank stocks have doubled (or more) since early 2016. Has the industry gotten too expensive, and are any banks worth buying now?
It's important to recognize why bank stocks have done so well over the past year. Interest rates have started to rise, and profits have grown, which fueled the banking sector's surge for much of 2016. However, the big rally came after the presidential election. President Trump has pledged to cut banking regulations, and grow the economy rapidly, which could also result in rates rising even faster. If all of these things actually happen, the higher share prices are more than justified. If they don't, bank stocks could easily give up some of their gains.
However, there are a few bank stocks that have lagged the market and may be worth a closer look for bargain-seeking investors.
For example, Wells Fargo (NYSE:WFC) has underperformed the banking sector by more than half since news of its now-infamous fake accounts scandal broke. Sure, there was some short-term fallout from it, but from a long-term perspective, Wells Fargo is still an amazing institution that consistently delivers top-notch returns on equity.
Another bank to look at is New York Community Bancorp (NYSE:NYCB), which specializes in making loans on rent-controlled or rent-stabilized New York City apartment buildings. The bank's shares have taken a beating over the past couple of years, possibly due to a lack of clarity on the company's future direction and why its proposed merger with Astoria Financial fell apart. While there are some legitimate concerns, NYCB is one of the most efficient banks and has an extremely high asset quality. Plus, the stock has a 5.1% dividend yield -- one of the highest in the financial sector.
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