Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 10.6% gain for the banking industry over the past six months. This performance has closely followed the S&P 500.
Although banks have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from traditional institutions. Keeping that in mind, here are three bank stocks we’re steering clear of.
Fulton Financial (FULT)
Market Cap: $4.09 billion
Tracing its roots back to 1882 in the heart of Pennsylvania, Fulton Financial (NASDAQ: FULT) is a financial holding company that provides banking, lending, and wealth management services to consumers and businesses across five Mid-Atlantic states.
Why Are We Hesitant About FULT?
- Muted 8.9% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Annual earnings per share growth of 6.6% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 9.8%
Fulton Financial is trading at $21.39 per share, or 1.1x forward P/B. To fully understand why you should be careful with FULT, check out our full research report (it’s free).
PennyMac Mortgage Investment Trust (PMT)
Market Cap: $917.4 million
Operating as a real estate investment trust since 2009 to maintain tax advantages, PennyMac Mortgage Investment Trust (NYSE: PMT) is a specialty finance company that invests in mortgage-related assets and operates a correspondent lending business.
Why Do We Pass on PMT?
- Annual sales declines of 23.1% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 6.3% annually over the last five years
At $10.52 per share, PennyMac Mortgage Investment Trust trades at 0.7x forward P/B. Check out our free in-depth research report to learn more about why PMT doesn’t pass our bar.
Wells Fargo (WFC)
Market Cap: $232.3 billion
Founded during the California Gold Rush in 1852 to provide banking and express delivery services to miners and merchants, Wells Fargo (NYSE: WFC) is a diversified financial services company that provides banking, lending, investment, and wealth management services to individuals and businesses.
Why Are We Cautious About WFC?
- The company has faced growth challenges as its 5.1% annual net interest income increases over the last five years fell short of other banking companies
- Net interest margin shrank by 38.7 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 5.9%
Wells Fargo’s stock price of $75.97 implies a valuation ratio of 1.4x forward P/B. Read our free research report to see why you should think twice about including WFC in your portfolio.
Stocks We Like More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week - FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
