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3 Overlooked Big Banks with Value

When you think about big banks, JPMorgan Chase (JPM) and Bank of America (BAC) are probably some of the first you think of. And they’ve both performed incredibly well this year, returning 43% and 72% respectively over the last year.

But they both trade at a significant premium to their book value, meaning there are other global financial leaders that offer the same sector exposure but at a potentially higher value.

Take, for example, Citigroup (C), which is up 31% over the past year and presents a better value, trading at just 80% of book value while JPMorgan is priced at roughly 170% of book value.

Citigroup CEO Jane Fraser stated recently that the company will buy back shares and maintains a healthy dividend yield. Another strategic initiative is selling retail banking assets in 13 international markets in Asia, Europe, the Middle East, and Africa that have generated lower growth rates. Instead, more assets will be focused on four higher growth international wealth centers such as Singapore, Hong Kong, the United Arab Emirates, and London. Another positive is that the stock is trading at less than seven times earnings per share, much lower than its projected growth rate.

Looking overseas, as Asia recovers from the pandemic, a conservative way to play the rebound is through high quality Hong Kong and Singapore banks. These banks offer you money center home bases as well as tentacles reaching into China and throughout booming Southeast Asia.

One premier bank to consider is what I refer to as the JPMorgan of Singapore, the Development Bank of Singapore (DBSDY) – better known as DBS Group. DBS is one of the largest banks in Southeast Asia with a presence in 18 markets. It is headquartered in Singapore, with its main listing on the Singapore Stock Exchange, where it’s the largest constituent of the Singapore Straits Times Index. The Government of Singapore established DBS in July 1968 and its largest and controlling shareholder is Temasek Holdings, which is one of two large sovereign wealth funds controlled by the Government of Singapore.

DBS has a growing presence in the three key Asian areas of growth, which it defines as Greater China, Southeast Asia, and South Asia. It is the largest and considered the strongest bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore.

Its network reaches out through 200 branches and in more than 50 cities. DBS produces steady profit margins, revenue, and earnings and is also increasing market share in consumer and corporate banking. Wealth management is also a strategic priority and a growing part of its business. Despite all of these strengths, DBS is trading at only 13 times trailing earnings and sports a solid 3.2% dividend yield.

When thinking about other banking plays in Asia, HSBC Holdings (HSBC) can’t be missed. This is a bit of a turnaround story as it seeks to boost returns from its Mainland China business segments, which have lagged Hong Kong operations. On the plus side, the stock is only trading at 62% of break-up value. The bank was founded in Hong Kong in 1865 and previously known as the Hong Kong & Shanghai Banking Corp., but is now based in London. It garners about half of its revenue from Asia but, surprisingly, it has sold its Chinese strategic investments such as its stake in the Bank of Shanghai and the second-largest life insurance company in China, Ping An.

It has about 160 branches on the mainland, more than any other foreign bank. Of the bank’s 226,000 employees, 27,000 are in China and 29,000 are in Hong Kong. Due to increased profitability, HSBC has also announced a significant stock buyback initiative.

My advice is to add one of these blue-chip, under-the-radar bank stocks to your portfolio to offset your more aggressive picks.

Do you own any bank stocks? Which ones – and how have they performed of late?