Regional banks sold off dramatically as the coronavirus pandemic began to spread across the globe in February. However, as the economy slowly winds its way back to a healthier state and interest rates are starting to rise from recent lows, now could be an opportune time to invest in these stocks.
In the past month, the SPDR S&P Regional Banking ETF (KRE) has begun to rebound, rallying from about $35 to $42. Note that KRE is one of 11 positions in the Reitmeister Total Return portfolio. Learn more here.
Below, we provide a look at three of the most intriguing regional banks: HDFC Bank Limited (HDB), First Republic Bank (FRC) and SVB Financial Group (SIVB).
HDFC Bank Limited (HDB)
This India-based bank and financial services provider conducts operations in three primary spaces: retail banking, treasury operations and wholesale banking.
In the POWR Ratings service, HDB has “A” grades in the Peer Grade and Trade Grade components along with a respectable “B” Buy & Hold Grade. HDB is ranked fourth of 44 publicly traded companies in the Foreign Banks category. HDB had a 2019 price return of 23% and a three-year price return of 30%. More recently, HDB’s three-month price return was 22.70%.
HDB bulls have added even more money to this stock following the European Union’s decision to provide banks with capital relief. In short, the move has made it easier to free up money for banks to loan to businesses and others. The hike in optimism for the banking industry as a whole carried HDB higher in recent months. The company’s net profit has spiked 18% on a year-over-year basis.
First Republic Bank (FRC)
FRC provides banking services as well as wealth management including brokerage and investment trust services. FRC is a POWR Ratings is impressive, with “A” grades in the Trade Grade, Peer Grade and Buy Hold Grade components. FRC is ranked above nine other Money Center Banks stocks, taking the crown as the top-ranked stock in its category.
FRC has more than $128 billion in assets. The bank’s services are primarily tailored to those with a significant net worth, meaning the pandemic is not as much of a roadblock for the bank as it is for other financial institutions. FRC made $256 million in profit in the second quarter alone, a significant spike from the $38 million in profit in ’19. Furthermore, the company recently hiked its dividend.
It is particularly interesting to note FRC has exemplary credit quality. The bank has averaged a mere 0.05% yearly charge-off rate across the past two decades compared to the average rate of 0.38% across the country’s top banks. In other words, FRC’s elite clientele is likely to follow through on its borrowing promises and repay debts to the bank in a timely and comprehensive manner.
FRC’s robust loan portfolio combined with its minimal exposure to industries hit hard by the pandemic sets the stage for a successful end to ’20 and start to ’21.
SVB Financial Group (SIVB)
This regional bank provides banking services to healthcare and tech-oriented businesses throughout the world. SIVB has a particularly strong focus on Silicon Valley businesses in need of financial assistance. The bank also serves the needs of private equity groups and venture capitalists that fund businesses.
The POWR Ratings reveal SIVB has “A” grades in the Peer Grade, Buy & Hold Grade and Trade Grade components. SIVB is ranked first of more than 50 publicly traded companies in the Pacific Regional Banks category.
The top analysts are bullish on SIVB, setting an average price target of $299. SIVB has more than $85 billion in assets. Furthermore, the company’s clients are likely to pay their bills as evidenced by the bank’s comparably low charge-off rate of 0.12%. Look for SIVB to capitalize on the spike in startup businesses that launch after the pandemic, a phenomenon that will help this banking stock climb even higher.
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HDB shares were trading at $59.35 per share on Monday afternoon, down $1.01 (-1.67%). Year-to-date, HDB has declined -6.34%, versus a 6.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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