Housing starts negative and positive. Pick one. Regional bank stocks may be ready to add to patient, conservative portfolios.
WASHINGTON, May 21, 2015 – As has been the situation all week, listless markets seem to be correcting sideways again today on continuing low volume, even as the bias appears to remain in “melt-up” mode.
No veteran professional traders have ever seen anything like this, and most are throwing their hands up in frustration. The Maven – with fully 35+ years’ experience with the markets — is among them.
Meanwhile, interesting news today includes a downtick in the sales of existing homes and the continuing destruction derby otherwise known as Lumber Liquidators (symbol: LL) stock. (Check our companion column, The Prudent Man, for a bit more on this one, including yet another screed denouncing predatory short sellers.)
As for the housing starts, the National Association of Realtors reported that sales of existing U.S. homes “unexpectedly” dropped in April to the tune of a minus 3.3 percent. (Ever notice how everything is “unexpected” these days when it comes to economics? Who pays these people?) Miraculously, this stat is being interpreted in the “bad news is good” mode on Wall Street.
Apparently, the primary reason for the negative number is that once robust inventories of previously owned housing on the market are dropping, which actually appears to be the primary reason why less are being sold. Makes sense.
But what the inventory drop could also mean is that, with less housing stock to sell, bidding on existing houses could drive prices up and potentially extend a much-needed price recovery in that sector. Supply and demand. Strange, but it works.
Today’s trading tips
We’re going to try to come up with ideas here. But markets are currently so irrational that this is becoming difficult indeed.
One vaguely general idea that’s bugging us, though, is, maybe it’s time to nibble at stocks in the badly beaten up U.S. banking sector. If interest rates do eventually start inching up, which ultimately they must, banks—particularly smaller ones—might be induced to start making housing and small business loans again, which would be a major move toward increased profits and increased dividends, all of which could make conservative shareholders happy.
And we do mean conservative. We recall that the last time we made good money on banks was back after the big U.S. savings and loan debacle in the late 1980s, a disaster that took many years to work out.
Holding good but battered stocks in financial institutions at that time for roughly five years or so made us some pretty nice profits, and, believe it or not, safe ones, too, since the Feds backed up that banking recovery scenario as well.
Stocks that may be worth a look here are three Ohio banks: Keycorp (KEY), Huntington (HBAN), and the oddly named Fifth-Third (FITB).
Recovery in Ohio has been surprisingly robust even though that state is still behind the curve in many ways, particularly in traditional manufacturing.
But an unsung, big contributor of late has been the shale oil boom. It’s been driving sales of Ohio-manufactured steel pipe for starters, a key component for drillers, frackers and pipeline builders.
Better yet, the state is also participating directly in the shale boom itself. That’s because the Buckeye State has a sliver of Marcellus Shale running down its eastern edge, not to mention the deeper Utica Shale formation that extends from beneath the Marcellus to nearly the midpoint of the state.
Add to this a somewhat recovering housing environment there, and these three large, but primarily local/regional banks have a lot of room to grow.
Also on our radar are a close-by regional competitor, First Niagara (FNFG), which years ago picked up, with TARP assistance, several branches of now-defunct, Cleveland-based National City Bank that PNC had acquired by bailing out the whole entity—once the nation’s 10th biggest bank. But that the Feds wanted PNC to divest some of those branches for competitive reasons.
FNFG has had some trouble integrating the branches they picked up. Like the others, they also took some lumps in the Great Recession’s active phase, hurt by the housing bust like everything else in the banking industry. But a turn at this bank could also be near.
Ditto the New York-based New York Community Bank (NYCB), which all current analysts seem to have hated for years. It pays a fat dividend, unlike most other banks. The dividend seems secure.
Unknown to many investors, NYCB also got into the “buy up a failed bank cheap” sweepstakes back around the peak of the Great Recession, scooping up the failing AmTrust Bank, another Ohio institution with additional branches in Florida and Arizona. As a recovery finally takes hold—maybe after next year’s elections—that should help NYCB’s numbers considerably.
Currently, we only hold a few shares of KEY in one of our portfolios. But if we get a sharp downdraft in the markets over the next month or three, we’re very tempted to up our holding of KEY shares and add shares in these other banks as well.
Patience is the watchword. We still badly distrust this market. But you always have to hold cash and do some window-shopping from time to time, even if you’re not ready to buy. By checking out the merchandise in advance, you’re preparing for that ridiculously bloody down-day when it’s usually the best time to pounce.Click here for reuse options!
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