SunTrust Banks, Inc. (NYSE:STI) — The minutes of the Federal Reserve’s July meeting did not help shed light on when the central bank would raise the benchmark interest rate, which would, of course, benefit bank stocks like SunTrust. However, on Wednesday, fed fund futures showed traders factoring in a 49.7% chance of a rate hike in December compared with 47.5% the previous day.
SunTrust is one of the largest regional banks in the United States, with the majority of its branches in Florida, Georgia, Virginia and Tennessee. Despite shrinking interest margin due to ultra-low rates, and high loan losses, SunTrust delivered better-than-expected Q2 earnings thanks in part to an increase in mortgage banking revenue.
Turning to the chart, we see that STI stock is in a sideways trend with a bullish bias. After topping at $46 in July 2015, shares fell from a double-top (not shown) and made several failed attempts to break through the resistance line at $44.
While that resistance line is still a major barrier, the massive deep “V” reversal off the February lows near $31 appears to be a prelude to a major breakout. Shares also flashed several buy signals from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR), near the bottom.
Another deep “V” occurred in late June, and this pattern again proved the strength of resistance at $44. But with an interest rate hike possible before year end, STI stock is a strong candidate for a run to $50-plus. Traders should look to buy shares at $42 with a target of $50 for a potential return of almost 20%.
Additionally, SunTrust recently increased its quarterly dividend to 26 cents per share after the Federal Reserve approved the bank’s 2016 capital plan. STI stock has a current forward annual yield of 2.5%, and the next ex-dividend date is expected on Aug. 29.