Well-run banks are among the cheapest growth stocks you will ever own.
That's because, since hardly anyone thinks of banks as growth stocks, you can buy them at low multiples of earnings and overall asset values.
In fact, buying high growth, low multiple banks is a winning strategy that can help you beat the indexes without owning stocks with nosebleed valuations.
Here's what I mean...
When I buy operating companies, I like to see growing free cash flow. Free cash flow does not work quite as well for banks because of the way banks do their accounting.
I measure growth at banks by growth in earnings and growth in book value. The bank's book value's growth rate tells me that management is reinvesting the profits successfully and growing the value of the bank.
In most cases, the fastest growing banks are also taking advantage of the incredible leaps forward in fintech offerings to attract and retain customers.
Through research and rigorous back-testing, I found that buying those fast-growing banks at a low price to earnings ratio handily beat the S&P 500.
That makes them cheapest growth stocks to buy today...
This Cheap Tech Bank Has High Upside
Based in Phoenix, Arizona, Western Alliance Bancorp. (NYSE: WAL) is a leading Western business bank.
In addition to Arizona, Western Alliance has operations in California and Nevada. The bank's national business lines include homeowner associations services, hotel franchise finance, and technology and innovation.
There were some concerns about the hotel portfolio during the depths of the pandemic, but the business's focus on select-service hotels and strong underwriting has helped the bank navigate the worst of 2020.
The fact that the portfolio is currently at a loan-to-value ratio of just 60% makes it unlikely that the bank would take significant losses if there were defaults.
The hotel portfolio is just 8.5% of the total loan book, anyway.
Western Alliance has grown earnings and book value by more than 20% over the past five years.
Despite the outstanding performance that led to S&P 500 naming WAL the No. 1 best-performing of the 50 largest public U.S. banks for 2019, shares of Western Alliance trade for just 13 times earnings.
This Cheap Growth Stock Is Primed to Explode Higher
Ameris Bancorp. (NASDAQ: ABCB) is located in Atlanta, Ga. In addition to operating in its home state, the bank also has branches in Alabama, Florida, and South Carolina.
Ameris has a remarkable growth record as the company has grown its book value every year for 26 straight years. That includes the Internet bubble collapsing and the great credit crisis of 2008-2009 that destroyed many banks' value in the United States.
Ameris reported a record quarter for the third quarter of 2020. The bank has done a fantastic job of navigating the pandemic. Credit quality is outstanding, and nonperforming assets are just 0.82% of all assets - well below the industry averages.
The strong performance should continue. Ameris is the largest regional bank in its core markets right now, which are growing rapidly...
The Southeast saw continued inflows of residents as people fled the more densely populated areas when the pandemic began. The region is expected to grow in size by as much as 5% annually for several years.
Ameris has grown earnings by 17% annually, and management's intelligent capital allocation decisions have driven book value higher by more than 21% a year over the past five years.
In spite of their remarkable track, shares of this well-positioned bank trade for just 11.8 times earnings right now - making ABCB one of the cheapest growth stocks to buy now.
The Cheapest Growth Stock to Buy Right Now
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Los Angeles, Calif.--based PCB Bancorp. (NASDAQ: PCB) is one of the fastest-growing banks on my list.
PCB has operations all over the United States as it is an ethnic bank that deals with the Korean American and Korean immigrant communities in the United States.
The bank's loan portfolio is mostly in commercial real estate and general business lending, but it has navigated the troubled waters of 2020 in an outstanding fashion.
While PCB initially had loan deferral requests from 154 borrowers on total loan balances of $171 million, those numbers have declined to 16 customers with a total balance of just $19 million.
With the vaccine's deployment over the next few months, those numbers should go back to being close to 0.
PCB Bancorp also did 1,614 PPP loans with a total balance of more than $139 million.
The bank has grown both earnings and book value by more than 30% a year over the past five years. In spite of that, the stock currently trades for just eight times earnings - making it my cheapest growth stock to buy today.
The Complete List of Best (and Worst) Stocks for 2021
Wall Street insider Shah Gilani says 2021 could be a gold mine for Americans.
He's showing his subscribers exactly which stocks to buy and which to sell.
But you're getting it all for free - no sign-up or credit card required.
Prices, tickers, and company names will be coming your way fast.