Investing Idea: Regional Banks, USB, MTB

Posted by

January 21, 2010

Sometimes, great companies see their stocks inexplicably move lower. Other times, stocks of terrible companies seem to move higher (even if not permanently). Every now and then though – like now – bullish charts are actually supported by real corporate results Such is the case right now with the regional banks such as U.S. Bancorp. (NYSE:USB) and M&T Bank Corp. (NYSE:MTB).

The S&P 1500 Regional Banking Index is leading the charge in 2010 so far, and has worked its way above what had been a significant resistance line around 52.4. Given that the underlying stocks have (in the aggregate) made the same technical shape, most of them should also qualify as breakout stocks.

Regional Bank Index

And make no mistake – they deserve to run higher. While the media was consumed with the bigger banking fish on Wednesday, U.S. Bancorp reported a double in quarterly earnings on an increases portfolio of mortgage loans, and M&T Bank Corp. posted a 34% increase in quarterly income. Granted, the comps were easy, but the smaller names have still managed to do something the bigger banks can’t yet… overcome nasty loan losses and actually grow the business, rather than sitting on a solid balance sheet.

A handful of other regional banks will be reporting on Thursday, though odds are good they’ll mostly repeat the M&T and U.S. Bank story. That compelling group-wide news should stoke the fire that’s already been partially lit under this group’s stocks.

Technicals that reflect the fundamentals? Fundamentals that support the rising chart? Stranger things have happened. And here’s the best part of all – despite the recent gains, these stocks (as a group) still have a massive amount of room to recover before rivaling 2007’s highs.

It’s a longer-term idea, but a good one now that we can see the regional banks are turning the earnings corner before the larger ones have.

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