SunTrust Banks, Inc. (STI): This Bank Is Cheap According to Ben Graham

Compared to some other banks of similar size, SunTrust comes out on top as the cheapest by a wide margin:

Source: Yahoo! Finance and author’s calculations. 

Why does a company like SunTrust have over 95% of upside from its current price to its Graham valuation? Part of the reason could be its poor performance in last year’s stress test, as mentioned above. Its share price was also one of the worst performers during 2011, though it did recover nicely during 2012 as financials rallied. Third-quarter results also drove down the price a bit during the past six months, as the bank saw a large one-time gain from the sale of Coca-Cola shares and not from an improvement in banking quality.

Other banks on the list could also be attractive options even if they don’t have as much room to grow. BB&T is a personal favorite of mine because of its focus on community banking and strong leadership. Unlike SunTrust, BB&T actually performed well during last year’s stress test, and promptly boosted its dividend 25% shortly after the results were released. Fifth Third performed even better than BB&T in the stress tests, and despite trading near its 52-week high, it has plenty of room to grow into its Graham valuation. In the meantime, investors can benefit from a sizable 2.5% dividend yield and its position as a leading bank in the Midwest.

The article This Bank Is Cheap According to Ben Graham originally appeared on Fool.com.

Fool contributor Robert Eberhard has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool owns shares of Fifth Third Bancorp.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.