These two blue-chip banks are trading at low valuations, with plenty of long-term upside.

When you have a chance to buy two of the biggest blue-chip banks in the world at such low valuations, it is something you have to consider. That’s where we are right now with Goldman Sachs Group ( GS -1.18%) and Citigroup ( C -2.02%). While we don’t know exactly where the economy is headed over the next few quarters, we do know these two industry titans currently look undervalued and investors have an opportunity to buy and hold them for the long term.

Goldman Sachs has by far been the better performing of the two in recent years, while Citigroup has struggled over the past decade or so. But the bank seems to be headed in the right direction. Let’s take a look at these two cheap bank stocks. 1. Goldman Sachs Group

Goldman Sachs is one of the best values out there right now. It is not often that the opportunity presents itself to buy one of the world’s leading investment banks at such a cheap price. Let’s take a look at some of the key valuation metrics.

The stock is trading at less than seven times earnings over the trailing 12 months and has a forward price-to-earnings (P/E) ratio of just 7.92, which is well below its historic average. Its P/E ratio is near the lowest it has been since the start of the pandemic. Also, it has a P/E-to-growth (PEG) ratio of 0.59, which means it is trading well below its expected earnings over the next five years. A PEG ratio below 1 generally means it is undervalued. In addition, it has a price-to-book (P/B) ratio of 1, which means it is trading about equal to its book value, or what left after liabilities are subtracted from assets.

The reason Goldman Sachs’ stock has fallen this year is that the investment banking business, including mergers and acquisitions, has dried up, and its asset management segment is down due to the bear market. These two businesses will come back when financial markets rebound and complement its institutional trading and consumer banking and wealth management segments — both of which have seen revenue gains this year. Goldman’s largest segment is its trading business, called global markets. This business can be volatile as well, but Goldman has made strides to build out its consumer banking and wealth management operation in recent years to achieve steadier performance.

If you go back to the pandemic recession, Goldman Sachs fell to about $135 per share at the depth of COVID-19 market crash, from $250 before the pandemic hit. It surged all the way to about $400 in the fall of 2021 during the recovery. But even through this bear market, it is still trading at $301, which is 22% higher than the pre-COVID high in January 2020. So, through one recession and two bear markets, Goldman Sachs is still up a good deal. 2. Citigroup

Citigroup has not been as resilient as Goldman Sachs, and that is due to a host of issues, not the least of which is some faulty internal controls that led to costly fines and errors that involved funds being sent to the wrong place .

But Citigroup has some built-in advantages as one of the four largest U.S. banks. Being a megabank, it also has investment banking, institutional trading and corporate banking, and wealth management — similar to Goldman Sachs. But its consumer banking business is much bigger than that of Goldman Sachs, and, in a rising interest rate environment, it has performed better in this cycle. That helped the bank’s revenue rise 11%, although earnings were down in the second quarter year over year mainly due to higher credit costs and increased operating expenses.

Also, Citigroup has made some major changes within its organization, tightening up internal controls and refocusing its strategy under Chief Executive Officer Jane Fraser on shedding some of its underperforming international banking properties, making the operation more efficient, and building out its core strengths. The strategic shift caught the eye of Warren Buffett, chairman and CEO of Berkshire Hathaway , who added Citigroup to the conglomerate’s portfolio earlier this year.

Making it even more attractive is its rock-bottom valuation. Citigroup has a P/E ratio of 5.3 and a PEG of 0.57. In addition, it has a minuscule P/B ratio of just 0.47.

In a high interest rate environment, Citigroup should continue to generate strong revenue, particularly if the economy doesn’t fall into a protracted recession. […]

source 2 Cheap Bank Stocks to Buy Now and Never Sell

editor Stocks

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