Bank stocks continue to lag the overall market and are not sharing in the current rally. Year-to-date (YTD), the S&P Bank index is down 13% compared to a 19% gain in the benchmark S&P 500 index. Through 12 months, the Bank index is down 20%. Looking out five years, U.S. bank stocks as a group are down 2%.
In fact, U.S. bank stocks recently fell to an all-time low against the S&P 500 at a time when the market is enjoying its best rally in three years. This is a sad performance that has made banks as a whole a terrible investment and a sector that is best avoided. Much of the recent underperformance has been due to concerns over high interest rates, loan defaults and the failures earlier this year of several regional banks such as Silicon Valley Bank and Signature Bank.
Here are three sorry bank stocks to sell in December.
SoFi Technologies (SOFI)
Don’t be fooled by shares of online bank SoFi Technologies (NASDAQ:SOFI). The company’s stock might be up 55% this year, but that comes after a bruising downturn during the 2022 bear market. Today, SOFI stock is trading 33% below where it finished on its first day of trading in December 2020. And the shares are changing hands 72% lower than their all-time high reached in January 2021 shortly after the company’s much hyped initial public offering (IPO).
By almost every measure, SoFi Technologies has been a sorry bank stock for investors to own. The company managed to report better-than-expected third-quarter financial results. However, investors should be aware that SoFi remains unprofitable. For Q3, the digital lender reported a loss of 3 cents a share, which was less than the loss of 8 cents expected on Wall Street. The bank is also exposed to a high degree of risky borrowers and loans that could turn bad, making it one of the bank stocks to sell in December.
Morgan Stanley (MS)
Wall Street investment bank Morgan Stanley (NYSE:MS) has seen its stock struggle mightily since the market turned south in 2022. Over the last 12 months, MS stock has declined 13% and is not far from a 52-week low. A scarcity of deals on Wall Street, heightened concerns about the entire banking sector and uncertainty about the bank’s future direction have conspired to pull MS stock lower. The uncertainty comes from the fact that Morgan Stanley has recently appointed a new CEO.
Ted Pick will now helm Morgan Stanley, succeeding James Gorman who will retire on Jan. 1. Pick, a long-time Morgan Stanley insider, rose through the ranks to previously lead the bank’s Wall Street operations. Gorman, who has been CEO since 2010, will stay on as executive chairman at the firm for an undisclosed period of time. While analysts have supported the choice to make Pick CEO, the move also creates some uncertainty as Gorman departs, which is weighing on MS stock. Investors wondering what bank stocks to avoid right now should steer clear of Morgan Stanley.
Bank of America (BAC)
Bank of America (NYSE:BAC) is one of famed investor Warren Buffett’s largest holdings. He currently owns more than one billion shares of BAC stock worth $30.51 billion that comprise 8.50% of the portfolio of his holding company Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B). However, this has not proven to be a great investment. In the nearly three and a half years since Buffett started building his current position, the stock is up only about 5%.
This isn’t the first time Buffett has gambled on BAC stock. He previously built a big position in the bank back in 2007 only to dump his entire stake at a loss in 2010. By some estimates, Buffett’s 2007 investment in Bank of America lost more than two-thirds of its value before he offloaded it. More recently, Bank of America’s share price has declined 20% in the last 12 months. The stock is up only 4% in the past five years. The second largest lender in the U.S. remains a bad pick for Warren Buffett and the rest of us, so investors should put BAC on their list of bank stocks to sell.
On the date of publication, Joel Baglole held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.