3 Bank Stocks with Questionable Fundamentals

Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 18.8% gain has fallen behind the S&P 500’s 22.9% rise.

A cautious approach is imperative when dabbling in banks as many are sensitive to interest rate changes and economic cycles. Keeping that in mind, here are three bank stocks we’re passing on.

QCR Holdings (QCRH)

Market Cap: $1.20 billion

With roots dating back to 1993 and a name reflecting its original Quad Cities market, QCR Holdings (NASDAQGM:QCRH) operates four community banks across Iowa and Missouri, providing commercial, consumer banking, and trust services to businesses and individuals.

Why Are We Wary of QCRH?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Operational productivity has decreased over the last four years as its efficiency ratio worsened by 4.7 percentage points
3. High interest payments compared to its earnings raise concerns about its ability to service its debt consistently

QCR Holdings is trading at $70.90 per share, or 1.1x forward P/B. Check out our free in-depth research report to learn more about why QCRH doesn’t pass our bar.

Annaly Capital Management (NLY)

Market Cap: $13.36 billion

Operating as a real estate investment trust since 1996 with a focus on generating income from interest rate spreads, Annaly Capital Management (NYSE:NLY) is a diversified capital manager that invests in agency mortgage-backed securities, residential mortgage loans, and mortgage servicing rights.

Why Should You Dump NLY?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 22% annually over the last five years
2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
3. Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 11.1% annually over the last five years

At $20.80 per share, Annaly Capital Management trades at 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than NLY.

AGNC Investment (AGNC)

Market Cap: $10.41 billion

Born during the 2008 financial crisis when mortgage markets were in turmoil, AGNC Investment (NASDAQ:AGNC) is a real estate investment trust that primarily invests in mortgage-backed securities guaranteed by U.S. government agencies or enterprises.

Why Are We Out on AGNC?

1. Net interest income tumbled by 28.5% annually over the last five years, showing market trends are working against its favor during this cycle
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 7.1% annually while its revenue grew
3. Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 12.1% annually over the last five years

AGNC Investment’s stock price of $10.00 implies a valuation ratio of 1.1x forward P/B. Read our free research report to see why you should think twice about including AGNC in your portfolio.

Stocks We Like More

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