Can big banks' 'cheap' stocks keep rising? -2-

Citigroup                                                                                             11.4                         9.7                         7.4          11.3%     13.1%           8.7% 
Wells Fargo                                                                                           11.3                        11.4                        10.8          15.0%     14.5%          15.2% 
Goldman Sachs Group                                                                                   15.9                        12.4                         7.8          13.3%     16.8%          13.6% 
Morgan Stanley                                                                                        17.1                        14.7                        12.6          20.5%     27.1%          18.2% 
US Bancorp                                                                                            11.2                        10.5                        11.5          17.5%     17.0%          17.3% 
Capital One Financial                                                                                  8.6                         9.3                         7.6            N/A      5.6%            N/A 
PNC Financial Services Group                                                                          12.3                        12.3                        13.6          16.5%     15.2%          12.2% 
Bank of New York Mellon                                                                               15.8                        12.2                        11.9          28.8%     29.5%          27.8% 
Truist Financial                                                                                      10.3                        10.5                        11.3          14.1%     13.8%          12.3% 
Charles Schwab                                                                                        14.6                        19.6                        21.3          40.7%     40.0%          35.6% 
State Street                                                                                          12.8                        10.7                        11.2          23.0%     20.1%          19.4% 
American Express                                                                                      17.7                        18.4                        22.0          39.0%     36.1%          37.8% 
Fifth Third Bancorp                                                                                   12.9                        11.3                        10.4          17.2%     16.0%          17.6% 
Huntington Bancshares                                                                                 10.1                        10.3                         9.7          16.4%     11.6%          16.1% 
Citizens Financial Group                                                                              11.5                        10.4                         9.1          13.5%     12.2%          10.7% 
M&T Bank                                                                                              11.7                        11.1                        11.2          16.7%     14.5%          15.5% 
KeyCorp                                                                                               11.2                        10.5                         8.8          12.3%     13.0%          11.2% 
Northern Trust                                                                                        15.3                        14.3                        16.6          17.5%     17.8%          14.1% 
                                                                                                               Sources: LSEG, except FactSet for Goldman estimated and Q1 ROTCE and Capital One Q1 ROTCE 

Analysts are expecting mostly sequential declines in ROTCE for the largest six banks, with Wells Fargo the exception.

"With Wells Fargo, you can see how they are optimizing their balance sheet after the asset cap," Sykes said, referring to the limit the Federal Reserve placed on the bank's asset growth in 2018 as part of regulatory actions taken to correct problems with Wells Fargo's deposit- and loan-account servicing, as well as certain sales practices. The asset cap was lifted in June 2025.

Among stocks of the largest U.S. banks, Poonawala favors Citigroup, whose management team expects to improve its ROTCE to a steady range of 14% to 15% over the next several years. Citi's second-quarter ROTCE is expected to show the greatest improvement from a year earlier for any of the banks on the list, with the exception of Capital One, which reported a net loss during the second quarter of 2025 when it acquired Discover Financial.

Even with that improvement, Citi "is the one among the Big Six where the room for improvement is the most," Poonawala said. Citi is roughly tied with Wells Fargo as the cheapest among the six largest U.S. banks by forward P/E valuation.

Sykes continues to favor American Express (AXP) as a long-term investment. Looking at the second table, you can see that the company has the highest forward P/E on the list. But that P/E valuation of 17.7 compares with a five-year average of 18.4 and is well below the valuation of 22 five years ago. If you had bought the shares at that considerably higher forward P/E, your five-year return would have been 114%, compared with returns of 86% for the S&P 500 and 50% for the KBW Bank Index.

American Express's second-quarter ROTCE is estimated to be 39% - the second highest on the list after Charles Schwab (SCHW).

So this may a good entry point for American Express, whose reputation for good customer service remains "a differentiator for them within the industry," Sykes said.

Don't miss: Eight microcap stocks of companies expected to grow sales by triple digits through 2028

-Philip van Doorn

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