This Fearful Part of the Market Has Pockets of Safety

While stocks have trended higher this year overall, investors have been unpleasantly surprised by a series of bank failures. While it’s been largely quiet in the past few weeks, many small and regional banks remain beaten down.

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  • That’s creating an opportunity for investors. Why? While there may still be more bank failures ahead, many names in the space are safe. And because they’ve been beaten down so heavily, they now trade at a steep discount.

    For instance, regional bank Citizens Financial Group (CFG) trades for less than 0.6 times its book value. It’s unlikely that the bank will have to write down 40 percent of the value of its loans. That’s just one metric that indicates a contrarian buy here.

    The bank trades at 6 times forward earnings, nearly one-quarter the average earnings multiple on the S&P 500 index. And even with rising interest rates over the past year, Citizens has seen its profitability improve.

    Action to take: The bank recently increased its dividend and made a payment in May, with a resulting yield of about 6.4 percent at current prices. On a return to a more normalized share price close to book value, investors today can be well paid while potentially seeing upside of 60 percent or more.

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  • For traders, shares have started trending higher in recent weeks. The September $30 calls, last going for about $1.40, could see high-double-digit returns or better on a continued move higher.


    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.