1 Bank Stock with Competitive Advantages and 2 We Ignore

Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry has tumbled by 6.9%. This performance is a noticeable divergence from the S&P 500’s 4.5% return.

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. On that note, here is one resilient bank stock at the top of our wish list and two we’re steering clear of.

Two Bank Stocks to Sell:

Two Harbors Investment (TWO)

Market Cap: $1.03 billion

Operating in the complex world of mortgage finance since 2009, Two Harbors Investment (NYSE:TWO) is a real estate investment trust that invests in mortgage servicing rights and agency residential mortgage-backed securities.

Why Should You Dump TWO?

1. Annual net interest income declines of 47.1% for the past five years show its loan book struggled during this cycle
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 20.2% annually
3. Annual tangible book value per share declines of 14.6% for the past five years show its capital management struggled during this cycle

Two Harbors Investment’s stock price of $9.89 implies a valuation ratio of 0.7x forward P/B. Check out our free in-depth research report to learn more about why TWO doesn’t pass our bar.

TFS Financial (TFSL)

Market Cap: $3.53 billion

Tracing its roots back to 1938 during the Great Depression era when savings and loans were vital to homeownership, TFS Financial (NASDAQ:TFSL) is a savings and loan holding company that provides mortgage lending, deposit services, and other retail banking products primarily in Ohio and Florida.

Why Do We Think TFSL Will Underperform?

1. Net interest income trends were unexciting over the last four years as its 4.9% annual growth was below the typical bank company
2. Inferior net interest margin of 1.7% means it must compensate for lower profitability through increased loan originations
3. 1.4% annual tangible book value per share growth over the last two years was slower than its bank peers

At $12.65 per share, TFS Financial trades at 1.9x forward P/B. Read our free research report to see why you should think twice about including TFSL in your portfolio.

One Bank Stock to Watch:

Webster Financial (WBS)

Market Cap: $9.24 billion

Founded during the Great Depression in 1935 and evolving into a major Northeastern financial institution, Webster Financial (NYSE:WBS) is a bank holding company that provides commercial banking, consumer banking, and employee benefits solutions through its Webster Bank and HSA Bank division.

Why Are We Fans of WBS?

1. Annual net interest income growth of 22.1% over the past five years was outstanding, reflecting market share gains this cycle
2. Non-interest operating profits and efficiency rose over the last four years as it benefited from some fixed cost leverage
3. Earnings per share have massively outperformed its peers over the last five years, increasing by 13.8% annually

Webster Financial is trading at $55.33 per share, or 1x forward P/B. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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-small-cap company Comfort Systems (+782% 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

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.