Bank Stocks Continue to Soar
Financials were the clear winners today, particularly regional banks. I have been pounding my fist for the past few months about financial stocks. They’re likely the first ones to recover when the market turns bullish. A lot of bank stocks look particularly cheap because they have such low price-to-book ratios. A good example is Superior Bank (NASDAQ: SUPR) that has book value of $16.43 but is only trading at $3.25. On the surface, it looks like a bargain but you have to look more closely at the company to get a clearer picture.
Rising charge-offs and non-performing loans are hurting a lot of banks and you have to look at those trends before deciding whether a bank is on it’s way to recovery or if it’s a sinking ship. In the case of SUPR, I think the number of non-performing loans and charge-offs are leveling off according to their latest 10-Q and therefore, it’s stock price will likely jump considerably if it can show some stability in it’s upcoming quarterly earnings reports. (Disclosure: I have no position, as of today, on SUPR).
I still like regional banks more than large banks like Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), CitiBank (NYSE: C) or JP Morgan Chase (NYSE: JPM). But out of these 4, I like Citibank the most because it’s the biggest bargain (but also with the most risk). But I think regional stocks will outperform large banks this year, simply based on locality and efficiency. But avoid regional stocks that do business in areas heavily exposed to high unemployment or poor real estate markets — yes, unemployment and real estate is bad all across the U.S. but it’s worse in some areas than others. Pick banks that do business in less impacted areas and you’re likely to be better off.
