Regional bank stocks are gradually emerging from the crisis that struck the industry in March 2023.
Over the first week of June, regional banks emerged as the best-performing industry in the U.S. stock market, with the SPDR Regional Banking ETF (NYSE: KRE) soaring by 10%.
Only three months ago, the failures of Silicon Valley Bank and Signature Bank had a significant impact on the financial scene, causing widespread panic and posing a serious threat to the industry's survival. Investors were haunted by memories of the 2008 financial crisis, leading to a fear of contagion and a subsequent indiscriminate sell-off across the industry, impacting even the most solid institutions. Despite the initial shock, the regional banking industry has shown extraordinary resilience in the face of hardship.
Regional Bank ETFs Rallied In June
Contrary to previous predictions, encouraging indicators have recently emerged in the regional banking space. Deposit outflows from regional banks have ended, the threat of a U.S. recession and severe credit tightening has not materialized, and job market and service sector have remained stronger than expected. Furthermore, the constantly high-interest rates continue to give a critical lifeline to U.S. banks, allowing them to sustain huge interest margins.
While the recovery has already begun, the SPDR Regional Banking ETF has a 40% upside potential to revert to levels prior to the collapse of Silicon Valley Bank. This creates an appealing opportunity for investors looking for stocks with attractive valuations and modest positioning.
We highlight five regional bank stocks that still have the ability to rebound from previous losses, delivering possible profits on the way to an industry-wide recovery.
5 REGIONAL BANK STOCKS TO WATCH
Western Alliance (NYSE: WAL)
- Overview: Western Alliance Bancorporation provides various banking products and related services primarily in Arizona, California, and Nevada.
- Recent Performance: Month-to-date return of 17% as of June 6 and an impressive 41% return over the past month.
- Growth Potential: To reach pre-March 2023 levels, Western Alliance Bancorporation would still need to post a significant 90% gain.
- Stock Metrics: According to Benzinga Pro data, the stock has a 12-month forward price-to-earnings (P/E) ratio of 4.67x, suggesting a potentially undervalued position. The price-to-book ratio stands at 0.8, further indicating the stock may be undervalued compared to its book value.
- Overview: Zions Bancorporation provides corporate and commercial banking services, focusing on small- to medium-sized businesses in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming.
- Recent Performance: Month-to-date return of 13% as of June 6 and a 23% return over the past month.
- Growth Potential: To reach pre-March 2023 levels, ZION would still need to post a significant 67% price gain.
- Stock Metrics: The company has a 12-month forward price-to-earnings (P/E) ratio of 5.1x. The price-to-book ratio stands at 0.9.
- Overview: East West Bancorp, Inc. is a financial holding company that operates through its subsidiary, East West Bank. It focuses on serving the diverse needs of the Asian-American community and offers various products and services, including commercial and small business banking, personal banking, mortgage loans, and wealth management.
- Recent Performance: Month-to-date return of 11% as of June 6 and a 19% return over the past month.
- Growth Potential: To reach pre-March 2023 price levels, EWBC would still need to show a 40% surge.
- Stock Metrics: The company screens a 12-month forward price-to-earnings (P/E) ratio of 6.3x. The price-to-book ratio stands at 1.2.
- Overview: Huntington Bancshares Incorporated offers a wide range of banking services and operates in several states across the United States, with a primary focus in Midwest regions.
- Recent Performance: Month-to-date return of 8% as of June 6 and a 14.4% return over the past month.
- Growth Potential: To reach pre-March 2023 levels, HBAN would still need to rise by 33%.
- Stock Metrics: The company screens a 12-month forward price-to-earnings (P/E) ratio of 7.3x. The price-to-book ratio stands at 1.
- Overview: KeyCorp is a financial holding company based in Ohio, USA. Through its subsidiary, KeyBank, it provides a range of banking and financial services to individuals, businesses, and institutions.
- Recent Performance: Month-to-date return of 13% as of June 6 and a 9% return over the past month.
- Growth Potential: To reach pre-March 2023 levels, KEY would still need to surge by about 70%.
- Stock Metrics: The company has a 12-month forward price-to-earnings (P/E) ratio of 6x and a price-to-book ratio of 0.8.