Cheap, Delicious Banks
Matt is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fool Kevin Chen has an article up on Fool.com looking at a trio of banking metrics in an effort to divine whether banking stocks are a buy today. A big fan of analogies, this jumped out at me:
At a [price-to-book] ratio of 1.03, investors are paying for just $1.03 for every dollar of [Huntington Bancshares (Nasdsaq: HBAN)] book value. That's like paying a baker $1.03 for a pie that cost $1 to make.
Well, sort of. Right now -- at least if you ask most investors -- it's like paying $1.03 for a pie that may have rotten fruit baked into it. The pie may seem like a great deal, but then you dig in and get a mouthful of sour mush. More striking examples of this "spoiled pie" analogy are Bank of America (NYSE: BAC) and Citigroup (NYSE: C), whose pies are on the "must go NOW" rack at about $0.49 and $0.56, respectively.
Not that I necessarily agree with that prevailing view. In fact, I think the fears are likely overblown. So to stretch Kevin's already-stretched simile in one more direction, Huntington is like paying $1.03 for a $1 pie that's going to get up off its lazy pie rear end and bake you more pies. Or just pay you cash (Huntington has a 2.6% dividend).
TMFKopp owns shares of Bank of America. The Motley Fool owns shares of Bank of America and Citigroup Inc. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!