Buy This Sector as the Fear Is Finally Leaving

Sometimes the market gets fearful of some sectors. When that happens, prices plummet in a short period of time. However, the market is cyclical. And there will always be a new sector that grabs the market’s fear.

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  • As that happens, sectors where the fear is leaving will often see some big players move in to profit from a rebound ahead. And investors can follow along to further profits.

    The banking sector has quieted down, and many regional banks are trending higher. They’re still well off their highs since before the crisis broke out in March. And now we’re seeing some big money moves that suggest the worst is over.

    That includes the move by PacWest Bancorp (PACW) to sell a $3.5 billion portfolio of loans to Ares Capital (ARCC).

    PacWest shares look ugly following a 75 percent drop over the past year. But the stock now trades at 0.4 times its book value, so even in troubled economic environment, the bank is priced well under the value of the loans on its books.

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  • Action to take: Investors may like shares here for a long-term recovery. The bank did reduce its dividend recently to preserve capital, so it only yields 0.5 percent. But a move back to book value could still lead to more than a double here.

    For traders, the September $10 calls, last going for about $0.65, could see mid-to-high double-digit gains on a further move higher in shares in the coming months.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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