Wall Street is fond of saying that investors shouldn’t look to catch a falling knife. However, once a stock has had a big drop, fears of a further decline tend to leave investors on the sidelines.
That can mean missing out on the early part of a rally off extreme lows, which can be a big part of a total bull rally. That means it’s often ideal to buy when there’s still some lingering fear.
Right now, the regional banks are teetering. However, it’s been a few weeks since any bank failures. And it’s clear that big banks are willing to store excess deposits with smaller institutions to avoid any collapse there.
That could make now one of the better times to buy small bank stocks, before the all-clear is sounded.
With that in mind, Western Alliance Bancorp (WAL) looks interesting now. Shares recently took a drop as the bank updated on its total deposits. And given the selloff in shares over the past month, the stock now trades at less than 70 percent of its book value, and at less than 9 times forward earnings.
Action to take: Shares are a speculative buy here. WAL yields 4.1 percent at current prices, although it may lower its dividend to improve its cash situation over the next few quarters.
For traders, the June $35 calls, last going for about $3.05, offer a quick mid-double-digit return in the coming months on any short-term bounce in shares from here.
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.