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I created three episodes to explain the basics of analyzing bank stocks which are a black box to many investors. This episode covers how you can find undervalued bank stocks through five steps.
- Get a list of banks and narrow the list via Price to Book and Price to Earning ratios
- Understand why the banks are undervalued in terms of the two ratios. In many cases, the undervaluation is due to troubled assets or loans
- Evaluate whether or not the banks have an appropriate level of capital and reserve relative to troubled assets and loans
- Analyze their financial statements (balance sheet and income statement)
- Assess the quality of the executive management team via previous shareholder’s letters
Click here (The Bank Investor’s Handbook) to learn more about the book referenced in the episode.