Stockchase Opinions

Jim Huang SPDR S&P Regional Banking ETF KRE-N DON'T BUY Jan 30, 2019

The US regionals are driven by the US economy which has been on a decent pace. But it'll slow down this year and maybe the next. They're doing fine, chugging along, with no credit issues. He's lukewarm about KRE. It's sold off lately. Hold onto it and don't get aggressive now. Commercial lending is cyclically sensitive, which is his concern.
$53.560

Stock price when the opinion was issued

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Underweight US banks right now. They've underperformed the S&P for a while. Low interest rates, plus economic uncertainty. If interest rates start to move, they'll do better. But not now.
BUY

Financials have been slower to recover, only gaining strength in September-October. Still have a long way to go. If you believe we had a generational low in long-term interest rates, and we're just entering a reflationary cycle, insurance companies benefit as assets go up in price. Higher rates are really good. Also interesting are KIE and KBE. Most interesting is IAI, making new highs. As a group, financials have underperformed since 2007, so they should now have a tailwind in this environment.

BUY
Financials work really well in this re-flation trade. This goes right into it and should play very well at this time.
BUY

He's not surprised by the outflows from tech, which has been defensive this year. If Delta continues to slow and accomodative policy continues, investors will look at other places in the market for returns. KRE was below market weight. He trimmed his holding in June and jusT added to it. Cyclicals are up; financials have been flat this month, though up this past week. He likes regional banks; there's a return to loan demand.

BUY
If the yield curve flattens dramatically it wouldn't be good for the banks. For now, financials are likely to outperform. He owns some of these regional banks in stocked-based funds. Already have rallied significantly. Not necessarily a place to put new dollars. He still likes it and thinks it will be more profitable than growth stocks for the next year.
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TOP PICK

Speaking of which, KRE on the NYSE holds a basket of regional U.S. banks, including Comerica, SVB Financial and East West Bancorp. Some of the names in this basket will ring a bell for the wrong reasons. This ETF, as of the end of March, has lost 24%. If you think that the editors of Stockchase have gone temporarily insane, consider that sooner or later the regionals will bottom. Also factor that KRE charges only a 0.35% MER, pays a not-bad 2.39% dividend yield, and its beta is only 1.1, surprising considering all that has happened.

BUY

No one said buy the regional banks before they reported, but KRE has jumped 16.5% so far this month, including 7.5% last week. Many regional banks reported excellent quarters. Also, there hasn't been another regional bank failure since the spring.

TOP PICK

Regional banks are unfairly discounted. There has been a big sell-off in a sector that people will be re-evaluating and maybe consider buying. There is lots of consolidation at the $43 to $44 level. It has a solid base at $40 and should trade up to $50 depending on interest rates declining.

BUY

It's time to look at US regional banks, because they're well-positioned for the next few years.

SHORT

Shorting this, as it has such significant commercial real estate holdings.