Stock of the Week: Score a Double on This Undervalued Bank

|January 6, 2024

The banking sector had a tough 2023.

Banks became undervalued as investors stayed away for several reasons…

Including a few spectacular failures to start the year…

Fears over a recession and whether people would be able to pay their debts…

And the possibility of even more failures.

But now that undervaluation spells opportunity.

I’ve found an undervalued bank with a history of strong revenue growth and profitability… and its earnings are growing at an average annual rate of 20%.

Plus… the stock could double from here.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to watch it.

Transcript

Stock of the Week, my friends. And even during the holiday times, I’m working and I’m excited.

This is a company which my team has put on my desk as part of a shortlist of stocks, and I really like it.

Now, it’s Western Alliance Bancorporation (WAL). You might know that banks have been somewhat undervalued – not least because of concerns about a recession and whether people would be able to pay back their debts. And if there’s a recession, maybe companies would fail, and so on and so forth.

Well, here’s one which has a history of revenue growth – and we’ll look at that in a second – and strong profitability, growing earnings at an average annual rate of 20%. And it has $70 billion in assets.

Now, $70 billion in assets is not actually that big for a bank. But the profitability and the numbers… let’s have a look at those.

On my Growth-Value-Income rating, it’s got a 7. That’s well above the minimum requirement that I have. I mean, it has to be above… it has to be 7 or higher… 7, 8, 9 or 10.

So it’s well above the 0, 1, 2, 3,4, 5, 6, which so many companies have. It’s better than most companies. That’s important.

The forecast P/E ratio is 8.3, which means you are paying $8.30 for every forecast dollar in profits. That’s relatively cheap, even for a bank, let alone, of course, if it were a tech stock.

Now, we don’t have a cash return on capital invested score on this, and that’s because with banks, that often is the case. And that doesn’t worry me too much because the Sortino is 0.24. I want it to be above 0.3. What does that mean? It’s the average return versus the downside risk of missing it. And it’s… well, for my GVI Investor picks, I normally have it at 0.3, but 0.24 is close enough.

Volatility of 30%. Ideally, again, for my GVI Investor picks, I want it below 20%. So it’s a little bit riskier than I normally have.

The stock has doubled since May 2023, which is good.

A lot of analysts have got it as a “Buy” rating. I don’t really care what the analysts think, but this has got the potential, if it goes back to its January 2022 highs, of doubling from its current levels. In other words, last year it hit a bottom in May. It’s doubled since then. If it goes back to where it was in January 2022, it’s going to double from current levels. And that’s what we’re really looking at potentially.

On a discounted cash flow basis, it’s undervalued. And earnings are forecast to continue growing as well.

So I like it on all those grounds. I hope you like it as well.

I’m wishing you a happy new year and, equally importantly, a prosperous new year. The funny thing is, if it’s a prosperous new year, it’ll be a happy new year. My job is to take care of the prosperous part, through my Stocks of the Week and my GVI Investor service. You take care of the happiness once I take care of the prosperousness for you, okay?

Thank you very much.