The current market climate has pushed the Dow Jones Industrial Average and S&P 500 to new all-time highs, and both indices aren't too far below these levels. But it also has not been a great period for the financial sector -- particularly banks.

For one thing, rising interest rates have caused margins to compress in many cases. In simple terms, the interest rates banks are paying on deposits have been rising faster than the yields they get from their loan portfolios. Plus, there are widespread economic fears that we'll see a spike in loan defaults, especially if a recession comes, plus the geopolitical uncertainty in the world right now isn't helping.

While the next few quarters could certainly be a turbulent period for the banking industry, it could also be a great opportunity to invest in rock-solid bank stocks that are embracing the technologies of tomorrow.

SoFi's growth has been impressive -- its stock, not so much

Banking disruptor SoFi's (SOFI 0.14%) stock hasn't been a major outperformer lately and is nearly 40% below its 52-week high despite stellar results from the business. Just to name a few highlights from the most recent quarter:

  • SoFi reached GAAP profitability for the first time ever and anticipates remaining profitable from here.
  • SoFi's member base reached more than 7.5 million people, a 44% year-over-year growth rate.
  • The Galileo banking infrastructure platform now has 145 million accounts in its ecosystem, compared with just 60 million three years ago.
  • Adjusted net revenue increased 34% year-over-year in the fourth quarter, and the adjusted EBITDA margin expanded from 16% a year ago to 30% now.
  • Management anticipates the company to produce earnings per share in the range of $0.55 to $0.80 in 2026, and for earnings to grow 20%-25% annually beyond that point.

SoFi is a relatively small bank today, with about $30 billion in total assets. That's roughly 1% of Bank of America's (BAC 0.98%) assets. (I'll talk about them in the next section.) And despite its stellar growth and impressive track record of over-delivering on projections, SoFi trades for a slight discount to its book value.

Bank of America could be a tremendous value

It might seem odd that I'm discussing Bank of America in an article about fintech stocks but hear me out. While all of the big banks have invested heavily in technology and efficiency, Bank of America is doing the best job of the big U.S. banks.

It was named the number one bank for online banking and mobile functionality in Javelin's 2023 rankings and was named the "Best Consumer Digital Bank" in the U.S. by Global Finance. 76% of the bank's customer households have adopted the digital platform, up from 70% in 2021, Zelle's person-to-person payment volume has more than doubled in the past three years, and half of the bank's sales, such as new loans, now take place through digital channels. The bank has also done a great job of consolidating its physical footprint with over 100 branch closures in 2023 alone and is maximizing the efficiency of its remaining locations.

Not only is Bank of America not losing any noticeable ground to its online competitors, but it continues to grow. In the first quarter of 2024, Bank of America added 245,000 net new checking accounts (the 21st consecutive quarter of growth), added more than 1 million credit card accounts, and has seen $44 billion of net inflows to client investment accounts in the past year.

At the current stock price, Bank of America trades for just 11.3 times forward earnings estimates, pays a 2.7% dividend yield, and trades for 1.06 times book value. (For context, Wells Fargo (WFC 0.12%) still isn't allowed to grow thanks to its numerous scandals and has a 1.27 price-to-book multiple.)

Two great, but very different, opportunities

I believe both of these banks are significantly undervalued and hold large positions in both in my own portfolio. To be sure, they could both be quite turbulent in the near term, especially until we get more interest rate clarity. But they both are making smart moves and look attractively valued, and I'm confident that they're going to be worth far more in the future.