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Dr. Kris
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Dr. Kris has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her satisfaction), she decided to tackle something even more difficult—the stock market. Applying the scientific method along with an insatiably... More
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  • Market Notes: Banking On Banks -- March 7 7 comments
    Mar 7, 2013 4:32 PM | about stocks: IAT, KRE, KBE

    3:45 pm ET: Well, yesterday's prediction turned out to be half right and half wrong. The market did rally on the open yet it was only the Dow Transport Index (DTX) that was unable to keep the ball rolling...but it appears as if it, too, is beginning to pick up some steam going into the close. Volatility continues to fall and the Trin has moved out of contrarian territory meaning that further upside is in the cards--providing the unemployment rate doesn't come in and stink up the joint tomorrow morning.

    Trade of the Day: Banking on Banks
    With the Fed's printing presses still operating in overdrive, much of this money is going directly to banks which is fattening up their coffers. The financials as a whole have under-performed the rest of the market but that situation has been changing as investors look for value. The banks as a group sport a collective P/E of 12--that's 25% below the historical P/E of the S&P 500. All of this free cash means that banks will be looking to do something with it. Sure, making loans is one way to distribute it, but they may also use a portion to add share value via such mechanisms as stock buy-backs and dividend increases.

    You can play the expected rise in share price by literally throwing a dart at a board of bank names or you can buy a basket of them via bank etfs. Two regional bank etfs (IAT, $26) & (KRE, $31)broke out to new multi-year highs today on heavier than normal volume as did the bank etf (KBE, $27). All three of these pay a dividend just under 2% and all are optionable. A covered call strategy on any of these etfs could be a nice way to profit from the expected price appreciation in this group.

    Themes: long ideas, banks, financials Stocks: IAT, KRE, KBE
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Comments (7)
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  • Hillbilly Stock Star
    , contributor
    Comments (737) | Send Message
     
    I think your correct Doc, I just bought ORRF & FRAF, Long. & Thanks
    Keep Up the brilliant work!
    7 Mar 2013, 10:23 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Dr. K - great post. I'm looking into $HBAN. Some insider buying recently and generally a positive outlook.
    7 Mar 2013, 10:37 PM Reply Like
  • Insider-Alerts
    , contributor
    Comments (717) | Send Message
     
    Yes sundate - we've been gravitating to the smaller/underfollowed banks where there has been lots of insider purchasing activity over the past couple months. Many announced great earnings, but not being followed, the stocks haven't moved. We've been scooping them up - the insiders have been tipping us off to them.
    8 Mar 2013, 08:49 AM Reply Like
  • Dr. Kris
    , contributor
    Comments (330) | Send Message
     
    Author’s reply » Insider buying activity is one tip-off; the other is an increase in options volume.

     

    Thanks for everyone's insights!

     

    Dr. K
    8 Mar 2013, 01:48 PM Reply Like
  • Insider-Alerts
    , contributor
    Comments (717) | Send Message
     
    Thanks Dr. Kris.

     

    Only thing is that on many of these smaller, unloved, unfollowed regional banks there are no options. Many trade OTC.
    8 Mar 2013, 02:26 PM Reply Like
  • Dr. Kris
    , contributor
    Comments (330) | Send Message
     
    Author’s reply » Very true. Thanks!
    8 Mar 2013, 02:33 PM Reply Like
  • mrmedusa
    , contributor
    Comments (343) | Send Message
     
    Looking at a 20% gain in PKB. Maybe sell 300 sh and buy into KBWR, a #1 Zacks rating. Maybe they'll do me well there, too.
    10 Mar 2013, 09:28 AM Reply Like
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