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The Gist

U.S. bank stocks have been crushed over the last few years. Most U.S. bank stocks were beaten down to multi-year lows by 2011 due to the 2008 U.S. housing crisis followed by the ongoing Eurozone debt debacle.

2012 has been a turnaround year for the financial sector, however. The banks covered in this article have risen more than 46% on average year to date. Regions Financial Corp. (NYSE:RF) is up the most with a 77% gain for the year while KeyCorp (NYSE:KEY) is up the least with a 17% gain for the year.

In the following sections I will present the positive macro catalysts for these banks and then perform a review of each bank's company specific fundamental and technical status to determine if the right time to buy is now.

The Details

The primary catalyst for these banks will be the U.S. housing market recovery. U.S. banks should benefit greatly as the housing market turns the corner, which appears to be happening now. Additionally, the sector is flush with liquidity. U.S. banks are well ahead of their European peers with regard to capital requirements. Many have already taken losses yet still have excess capital and reserves.

Finally, these banks have improving fundamentals and EPS growth projections. These banks are trading at low price-to-earnings multiples even when taking into account lower earnings expectations and are trading several multiples below normal. See summary chart below of the banks in question provided by Finviz.com.

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The Goods

Bank of America Corporation (NYSE:BAC)

I am long BAC. BAC is up 68% for the year, yet is still trading four fold below its 2007 high of $45 per share. The company is trading 8% below its 52-week high and has 2% potential upside based on a consensus mean target price of $9.45 for the company. BAC was trading Monday at $9.28, down slightly for the day.

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Fundamentally, BAC has several positives. BAC insider ownership has increased by 66.39% over the past six months. The company has a forward P/E of 10.20. BAC is trading for 7.07 times free cash flow. BAC has a net profit margin of 11.62% and a PEG ratio of 1.4. BAC is trading for approximately 42% of book value. EPS next year is expected to rise by 89.58% and the company pays a dividend with a yield of .43%.

Technically, BAC looks good. The stock broke out of a descending triangle to the upside at the beginning of August. The coveted golden cross, where the 50-day sma crosses above the 200-day sma, was fulfilled earlier this year. I went long BAC at this time. I have found the golden cross to be a key metric in picking winners. The stock is holding just above the 20-day sma currently.

I was involved in the housing industry for most of the last decade. I can tell you that the rebound in the housing market is real. BAC is well positioned to take advantage of the resurgence in home sales. BAC is a steal at these levels. I'm staying long.

Huntington Bancshares Incorporated (HBAN)

HBAN is up 33% for the year, yet is still trading two fold below its 2007 high of $20 per share. The company is trading 2% below its 52-week high and 2% above its consensus mean target price of $6.99 for the company. HBAN was trading Monday at $7.15, down slightly for the day.

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Fundamentally, HBAN has several positives. The company has a forward P/E of 10.67. HBAN is trading for 8.85 times free cash flow. HBAN has a net profit margin of 21.38% and a PEG ratio of 1.83. HBAN is trading for slightly over book value. EPS is up over 200% this year and the company pays a dividend with a yield of 2.24%.

Technically, HBAN looks good. The stock has been in a well-defined uptrend since June. The coveted golden cross, where the 50-day sma crosses above the 200-day sma, was fulfilled in February. The stock is looking somewhat frothy at this level with an RSI of 66.

Credit Suisse issued a note stating it is optimistic regarding HBAN's upcoming earnings report. Commercial and Industrial loan growth has remained strong in the Midwest and HBAN has done a good job of managing expenses. I believe the market may pull back some on bad news out of Alcoa (NYSE:AA) tomorrow. This should provide a buying opportunity for the stock. Earnings are expected on Oct 18th before market open.

First Horizon National Corporation (FHN)

FHN is up 24% for the year, yet is still trading nearly threefold below its 2008 high of $35 per share. The company is trading 10% below its 52-week high and on par with its consensus mean target price of $9.91 for the company. FHN was trading Monday at $9.84, up over 2% for the day.

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Fundamentally, FHN has a few positives. The company has a forward P/E of 11.58. EPS this year was up over 300%. FHN is trading for slightly over book value. The company pays a dividend with a yield of .41%.

Technically, FHN looks good. The stock has been in a well-defined uptrend since June. The coveted golden cross, where the 50-day sma crosses above the 200-day sma, was just achieved. This is a very bullish sign that often causes bullish technical buying.

FHN's risk reward ratio looks favorable. They seem to be making all the right moves to improve their balance sheet and accrued reserves to meet repurchase demands from the Government-sponsored enterprises. Nevertheless, I would sit this one out until after earnings on Oct 22nd. They missed for the first time last quarter. I like their prospects in the long run, but you may get a better entry point after earnings.

KeyCorp

KEY is up 17% for the year, yet is still trading nearly threefold below its 2007 high of $35 per share. The company is trading 4% below its 52-week high and 6% potential upside based on a consensus mean target price of $9.24 for the company. KEY was trading Monday at $8.75, slightly up for the day.

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Fundamentally, KEY has several positives. The company has a forward P/E of 10.17. EPS this year was up over 90%. KEY is trading for 81% of book value. The company pays a dividend with a yield of 2.29%.

Technically, KEY looks great. The stock has been in a well-defined uptrend since June. The coveted golden cross, where the 50-day sma crosses above the 200-day sma, was achieved in mid-August. The rise has been orderly and the RSI is neutral at 51.

KEY's risk reward ratio looks favorable. They have returned to profitability and are still one of the cheapest regional banks around. I like the stock here and am considering starting a position prior to the earnings call on Oct 18th before the market opens. I like the stock here.

Regions Financial Corp.

Regions is up 76.87% this year. The company is still down approximately three-fold from its 2007 high of a $32 per share. The company is trading 3% off its 52-week high and has 6% upside based on the analysts' mean target price of $7.95 for the company. Regions was trading Monday for $7.50, down nearly 1% for the day.

(click to enlarge)

Fundamentally, Regions has many positives. Regions trades for 4 times free cash flow. The company has a forward P/E of 9.38. EPS is rising exponentially quarter over quarter. The company is trading for approximately three quarters of book value.

Technically, Regions looks great. The stock has been in a well-defined uptrend since June. The coveted golden cross, where the 50-day sma crosses above the 200-day sma, was achieved in late February. The rise has been orderly and the RSI is neutral at 57.

Regions was trading for $3.96 the day of my initial recommendation in May. Regions' positive catalysts are still in place and its technical and fundamental states are positive. I like the stock here. It recently tested resistance at the 50-day sma and moved higher. Regions was a client of mine while I worked for Ernst & Young out of the Atlanta office in 1997. I reviewed their Y2K program. I was always impressed with their professionalism and conservative values. The stock is a buy here.

The Bottom Line

I posit this is just the beginning for these banks. They present excellent buying opportunities. Even though these banks have had a significant rally this year, they are still trading near multi-year lows and considerably off their multi-year highs. Bank of America is trading four fold below its high of $45 per share in 2007 while Huntington Bancshares Incorporated has the least trading two fold below its 2008 high of $20 per share. With the banks trading many folds below their five year highs, the potential is great for them to rebound significantly from current levels as the markets gain their footing.

If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk and setting a 5% trailing stop loss to minimize losses even further if you wish.

Source: 5 Financials Under $10 With Major Upside Potential To Buy: 3 Now, 2 Later

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.