Wednesday, October 1, 2008

Market Turnaround Strategies: Steady Eddie Stocks

Continuing with this week's mini-series on how we can profit when the market turns around, today I'm going to take a slight detour to focus on stocks that we can buy now or as soon as Congress puts together some sort of bailout package. I'm doing this for two reasons: One is I know that some people need to trade no matter what the market condition is and the other is that if the stocks I'll be mentioning can perform well in this highly volatile environment, just think of what they'll be able to do once Congress gets its butt in gear. (They're going to pass something; we just don't know what it will entail.)

Okay, here's what I've found. Some of you might be very surprised that the regional banks have been faring quite well in the past several months. I've been meaning to devote an entire blog to them, but have held off because I felt that you wouldn't have believed me. But charts don't lie and despite the fact that many stocks have sold off a bit recently, they're still continuing their uptrend. In fact, the uptrend has been so steady that I refer to these stocks as “steady eddies.”

My favorite Steady Eddies
I just tuned into CNBC's Fast Money show which I haven't seen for a week and a half and guess what? Pete Najarian (the guy with the goatee and ponytail) recommended the regional banks, too. I was going to say that great minds think alike but his favorite stock in this group is National City (NCC). He must be basing his recommendation on fundamentals because no technician would ever pick this one out. Although the stock did gain 65% today (from $1.75 to $2.89), that's still half of last week's value.


Here are my favorites. These stocks have been on the rise for the past few months, looking very attractive (compared with everything else) on a technical basis. Remember to do your due diligence before you buy them and make Pete Najarian, Jim Cramer, and Dr. Kris happy.

Best of the Regional Banks
[Note: “Last” is today's closing price. “Change” is relative price change since 7/15/08. “D/Y” is the dividend yield.]

UCBH, UCBH Holdings. Last: $7.25. Change: +129%. D/Y: 2.2%
PACW, Pacwest Bankcorp. Last: $31.57. Change: +147%. D/Y: 4.1%
SUSQ, Susquehanna Banc. Last: $20.22 Change: + 82% D/Y: 5.1%
UBSI, United Bankshares Last: $34.50 Change: + 77% D/Y: 3.4%

Best of the Savings & Loans
STSA, Sterling Financial Last: $14.69 Change: +467% D/Y: 2.7%

Best of the Money Center Banks (the big guys)
PFBC, Preferred Bank. Last: $11.30 Change: +161% D/Y: 3.5%
USB, US Bancorp Last: $36.68 Change: +62% D/Y: 4.6%
BAC, Bank of America Last: $38.13 Change: +106% D/Y: 6.7%

The regional bank ETF, the RKH
You can also buy the regional bank tracking stock, the RKH. I'm wondering why this is called a “regional bank” ETF since its top-weighted holdings are USB, JPM, and WFC—all large money-center banks. It also holds a 15% stake of preferred stock in Affymetrix (AFFX), a biotech company. I don't know what that holding is doing in its portfolio—perhaps some type of hedge? Looking at the chart of AFFX, the only good position here is a short one, unfortunately. If you like the regional banks and have the necessary capital, I'd suggest creating your own basket of stocks and eschew the RKH.

Other Steady Eddies
There are several other stocks that have been showing great resiliency which I'll toss out for your consideration. Three are in the insurance group: Life Partners (LPHI), up 161% since mid-March; LandAmerica (LFG), up 110% since August 1; and Radian (RDN), up 562% since July 2. These all pay a modest dividend.

Others include the following: 99Cents Only Store (NDN)*, up 91% since July 15, Retail industry; ICx Technologies (ICXT), up almost 100% since mid-March, maker of advanced sensor technologies; and Unifi (UFI), up over 100% since the beginning of July. This company makes fibers that are used in textile manufacturing. Sounds boring, doesn't it? But the company is very interesting for a couple of reasons: One is that it's moving up on heavier than normal volume on no discernible news (in fact it missed last quarter's earnings estimate). This is usually a sign of institutional buying. The other interesting fact is that Wall Street big-wig Ken Langone sits on the company's board and has bought over 550,000 shares of its stock in the past year. (There has been a rash of insider buying in the past year, all under $3/share, and no selling. Board member Bill Sams purchased 1.18 million over the past 10 months.) Pretty interesting for such a dull company, no?

*NDN was featured in the 9/5/08 blog entitled "No More 99 Cents Store."

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