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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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  • Weekend Wrapup: Any Bargains Left In This Market? -- November 22 3 comments
    Nov 23, 2013 1:08 AM | about stocks: FMBI, FRME, BBCN, HBHC, MBFI, OZRK, STSA, WIBC

    Weekend Wrap-up: Wow-wee, this market can't be stopped! The small correction we had for the first three days of this week was quickly extinguished by the bulls who are refusing to let the bears take control. Today we saw follow-through to yesterday's rally with the S&P, Dow Industrials, and Russell 2000 breaking out to new all-time highs. The burning question remains: Can this rally last?

    If history is any indication, 82% of the time the market has rallied the last two months of the year (since 1928). Them's pretty good odds it will happen again this year but there are a few things to consider before plunging headlong into the bull run. The first is that the market is becoming richly valued. Yes, there are a few places where value can still be had (see below for one area) but they are getting harder and harder to find. The historical mean P/E (price to earnings) for the S&P is 15.5. Currently, that value stands at 19.8--more than 25% above the mean. While this number isn't that extreme, it is definitely on the high side. The second reason is that technically the market is overbought. This year, the market has rallied five times before correcting and each time it was 9% to 13% above its 200 dma before it corrected. As of today's close, the S&P is 10% above its 200 dma placing it smack dab in the correction zone. Of course, the market can rally more but each day of gains brings us that much closer to the precipice. Any hint that the economy is in trouble--say, disappointing Black Friday sales figures?--could just be the straw that breaks the camel's back.

    Regional banks are still attractively valued
    Many months ago we noted how regional banks, which had been badly beaten down, were beginning to attract the attention of investors. Since then, share prices have been rising steadily pushing the bank and regional bank etfs (IAT, KRE, KBE) to new highs. Leading the charge among the regional banks are the following: First Merchant (FRME, $20.35), BBCN Bancorp (BBCN, $16.29), Hancock Holdings (HBHC, $34.40), and Wilshire Bancorp (WIBC, $9.89).Although all of these have enjoyed a substantial increase in share price, they are still reasonably valued at 14 to 16 times earnings. Leaders that are higher up the P/E scale (17 - 23) yet still attractively valued are the following: First Midwest (FMBI, $17.78), MB Financial (MBFI, $31.60), Bank of the Ozarks (OZRK, $53.53), and Sterling Financial (STSA, $31.63). On a purely technical basis, Bank of the Ozarks sports the most attractive chart and is the second lowest beta name of all the above mentioned stocks. A stock with a low beta is good if you're concerned about price volatility. On the flip side, this issue is also the one with the highest P/E. In conclusion, if you still wish to take part in the Santa rally, the regional banks offer solid value with a dividend kicker (1-3% yields on the above names).

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Comments (3)
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  • Hillbilly Stock Star
    , contributor
    Comments (736) | Send Message
     
    Lot's of people now hunting in regional banks, my bet is as conditions slowly improve could visit upside price action.
    23 Nov 2013, 10:13 PM Reply Like
  • oldorv
    , contributor
    Comments (417) | Send Message
     
    nice article, thanks. what do you think of internet banks? I'm currently long BOFI, IBCA, INBK. BOFI has done very well and the others strike me as potential movers, too, if one is willing to wait a little... I got more time than money as they say...

     

    keep writing, your fans await pronouncements.
    24 Nov 2013, 07:27 AM Reply Like
  • Dr. Kris
    , contributor
    Comments (327) | Send Message
     
    Author’s reply » Thanks for your nice thoughts, oldorv. Internet banks are interesting but the brick & mortar banks are rapidly expanding into that area. Sure, a bank with a pure online presence is going to have less overhead costs but the internet (at least for now) can't replace having a relationship with a real person. There's a lovely woman at my local bank branch who is my personal banker and I call her if I have any concerns about my accounts. Her service has been valuable. Besides waving some bank fees she's saved me a lot of time in many ways. This personalized service is something you don't get with internet banking.

     

    I can't rate your stocks on a fundamental basis but looking at their charts I can tell you that BOFI's is by far the strongest which I'm sure you know. If you had bought it at its $3 low back in 2008, you'd be up 2400% today! One word of caution: its P/E is 24 which isn't high but it's not low, either. INBK is showing weakness and is testing major support at $20. You may wish to consider lightening up your holding should it break under that level.

     

    Just my two cents.

     

    Thanks for writing!

     

    Dr. K
    25 Nov 2013, 02:14 PM Reply Like
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