In the tumultuous world of finance, it’s crucial to identify bank stocks to avoid. The March banking crisis, marked by the Silicon Valley Bank collapse and the struggles of smaller lenders, has significantly eroded investor confidence. This development is particularly concerning as the banking sector hasn’t reaped the expected benefits of rising interest rates, placing these stocks in a precarious position.
Furthermore, Goldman Sachs reports a notable shift among hedge funds from holding to short-selling bank stocks, betting on further near-term declines. This trend signals a clear warning: now is no opportune time to invest in bank stocks or other financial institutions. Compounding this viewpoint is the recent all-time low of U.S. bank stocks against the S&P 500, during the market’s strongest rally in three years.
These factors contribute to a dismal outlook for bank stocks, making them a category to approach cautiously. For those looking to make strategic moves in January, here are three bank stocks that are prime candidates for selling.
NewtekOne (NEWT)
NewtekOne (NASDAQ:NEWT), specializing in financial services for small and medium businesses, faces a challenging environment. Since its 2013 inception, it’s been a bumpy ride, culminating in a disappointing third-quarter earnings report. The company’s revised full-year 2023 earnings per share guidance now stands at a disappointing $1.60 to $1.80, sharply missing prior forecasts and analyst expectations. This represents a significant drop in forward GAAP earnings per share growth to negative 20.65%, alarmingly below the sector median of negative 3%.
Additionally, the third quarter saw only a marginal improvement in earnings per share and a modest rise in net interest income. However, these gains pale compared to the substantial decrease in total assets, from $1.44 billion to $1.38 billion. This decline highlights NewtekOne’s deep-rooted financial challenges.
Reflecting these internal struggles, the company’s stock performance has been dismal. It plummeted almost 19% in the last year and over 26% in the last five years. This steep fall underscores the company’s struggle to regain investor confidence, painting a grim picture of its current and future prospects.
SoFi Technologies (SOFI)
Often described as “polarizing,” SoFi Technologies (NASDAQ:SOFI) continues to grapple with the headwinds in the fintech sphere. Despite introducing new services, the firm’s heavy reliance on the personal loan business remains a major cause for concern. Moreover, though SoFi did report better-than-expected results for the third quarter, investors must note that the firm is still not profitable. The digital lender recorded a loss of three cents per share for the third quarter, missing estimates by two cents.
Adding to investor woes, SoFi’s operational cash flow tells a grim tale, plunging to a negative $9.4 billion, a figure remarkably worse than its five-year historical median. This financial strain is mirrored in its lackluster stock performance, with a year-to-date decline of over 12.42%. Currently, the consensus estimate on Tipranks is a HOLD, reflecting a cautious outlook from its analysts.
Barclays (BCS)
Barclays (NYSE:BCS) has announced a drastic step to axe 2,000 jobs to slash costs by $1.25 billion as it grapples with the fallout from costly trading blunders in its investment banking sector. These missteps have significantly dented the bank’s finances, compelling it to implement stringent measures, including job cuts and bonus reductions, in an effort to revitalize its flagging share price.
The latest round of layoffs, focusing primarily on back-office staff, is part of Barclays’ rigorous expense management strategy. This move aims to cut about 7% from its annual operating budget of $18 billion. The pressure is mounting on executives to rejuvenate Barclay’s stock value ahead of the crucial February 2024 investor presentation.
Complicating matters, Barclays’ revenue growth stands at a paltry 0.55%, starkly underperforming the sector’s median of 6.57%. This bleak financial performance highlights the steep challenges ahead for the British lender in its quest for economic recovery and market competitiveness.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines