After years of underperformance, financial stocks have bounced back in a big way in recent months. And regional bank stocks have led the charge.
The S&P Regional Bank Index (KRE) is up 51.9% since November 1 (hat tip to our Jacob Mintz for the stat), compared to a gain of just 15.1% for the S&P 500 Index overall.
Why the strength? A rebound was overdue, for starters. After topping out above 65 in June 2018, the KRE lost more than 55% of its value in the ensuing two years, bottoming around 28 late last March in the wake of the coronavirus market crash. Regional bank stocks didn’t have the V-shaped recovery tech stocks or other sectors have experienced since.
The KRE was only up to 33 as late as September of last year. Since then, it’s nearly doubled. But even with that incredible five-month surge, regional bank stocks are only now finally back to their June 2018 highs; the KRE trades at 65 as of this writing.
The other reason for the recovery in the financial sector as a whole is the improvements in the U.S. economy as lockdown restrictions have eased, coronavirus cases have gone down, and more people have gotten vaccinated. Wall Street has been looking ahead to the end of the pandemic. And banks – perhaps overly beaten down during last year’s crash – were one of the best places to find value.
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Regional banks, having suffered even more from the virus-induced recession, became particularly undervalued. As America recovers financially, banks that do business solely on U.S. soil are less at the mercy of slow vaccine rollouts or stricter lockdowns in other parts of the world. Hence the massive run-up in recent months.
5 Regional Bank Stocks that Have Doubled
Which regional bank stocks have been the top performers? Here are five that have doubled in the last six months:
Western Alliance Bancorporation (WAL): 171%
Signature Bank (SBNY): 129%
SVB Financial Group (SIVB): 108%
Pinnacle Financial Partners (PNFP): 106%
Synovus Financial Corp. (SNV): 101%
These five banks range in size, from a $27 billion market cap (SVB Financial) to a $6 billion market cap (Pinnacle), and all but Synovus (+3.6%) grew revenues by double digits in the most recent quarter. All five stocks have plenty of momentum, trading just off all-time highs, with the recent mini-market-correction taking only a modest bite out of them, perhaps creating a nice buying opportunity.
If I had to choose one, I’d probably go with Western Alliance, which is based in Arizona and has branches in Nevada and California. In the latest quarter, the company grew revenues by 31% and earnings by 51%; analysts expect the top line to expand another 43% in 2021, and EPS to improve 42%. Meanwhile, the stock trades at a mere 12 times forward earnings estimates, despite being the best performer of the bunch here, up 171% in the last six months.
The company pays a modest dividend (1.1% yield). But with a chart that looks like this….
…WAL looks like a good way to play a sliver of America’s banking recovery in a post-Covid world.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!