Trade of the Day: Regional Banks Look Like a Good Place to Put Cash

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SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) — This fund tracks the performance of the S&P Regional Banks Select Industry Index. S&P Capital IQ rates KRE “overweight” in a universe of 772 ranked ETFs. KRE has an annualized yield of 1.6% and a relatively low management fee of 0.35%.

The banking sector has delivered mediocre performance during the past 12 months, so KRE and similar funds have been sluggish. However, unlike the major banks, the regionals have been protected from the big run up in the U.S. dollar and its global implications. Therefore, I prefer the regionals to the big banks.

But the driving force to buy regional banks and KRE is the growing U.S. housing industry, which requires financing. Homebuilders’ ties to regional banks are well-known. While homebuilding stocks have recently become pricey, the regional banks are undervalued. KRE closed the first quarter at $40.83 per share, which was a slight discount to its net asset value (NAV).

KRE has been consolidating in a bullish saucer since October, trading between $37 and about $42. The formation is supported by multiple buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), and accumulation. Buyers have been more active since February.

A break above $42 would most likely result in a run up to $50, which is 23% above the current price and where we’ll place our trading target. A stop-loss order should be entered at $37. Investors may wish to hold KRE for longer-term participation in the growth of regional banks.

KRE Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/spdr-kbw-regional-banking-etf-kre-stock-trade-of-the-day/.

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