Regional banks, especially in the southeastern U.S., are outperforming as an industry group and many of them have recently passed buy points, such as First Horizon (FHN) and Southern States Bank (SSBK).
XThe industry group as a whole, Banks-Southeast, has vaulted to No. 5 from 32 just three weeks ago and from No. 56 six weeks previous.
Regional banks are gaining strength, making them an industry group to keep an eye on. The CAN SLIM investing strategy suggests looking for companies in the top 40 industries as a starting point to find winning growth stocks, so this group fits the bill. Keep in mind, the market correction makes any stock purchase risky.
Banks overall tend to do better during times of rising rates, like now. The Federal Reserve raised rates basis points last week as part of its campaign to aggressively raise rates to stem higher inflation. But commercial banks are also highly cyclical, and tend to underperform the market during periods of recession.
First Horizon, which operates banks throughout the southeastern U.S., is still in a buy zone. It entered the buy zone on Aug. 12 from a double-bottom base with a buy point of 23.21. The stock is trading above its 50-day moving average and has a rising relative strength line, according to MarketSmith chart analysis.
In February, Toronto-Dominion Bank (TD) agreed to acquire First Horizon in a deal valued at about $13.4 billion, or $25 per share. The acquisition, which makes TD Bank the sixth-largest U.S. bank, is expected to close in the current quarter ending Oct. 31.
Some Regional Banks Outperform As Rates Rise
The bank reported earnings for the second quarter of 2022 of 34 cents a share, which narrowly missed Wall Street estimates. It is scheduled to release Q3 earnings on Oct. 18, and analysts surveyed by Zacks expect First Horizon to earn 41 cents a share.
Southern States Bank stock is extended above its buy zone, which it entered on Sept. 1 off a cup with handle with a buy point of 25.09. The bank stock, which operates commercial banks in Georgia and Alabama, is trading well above its 50-day line and has an RS Rating of 97. Those factors make it a group leader.
Carter Bankshares (CARE) is another southeast bank and is approaching a 17.49 buy point in a cup-with-handle formation. The bank, which operates banks in Virginia and North Carolina, is trading above its 50-day line.
Although regional banks are outperforming, investors should also pay close attention at both the technicals and fundamentals before buying a stock. For example, several southeast banks were hitting sell signals Friday after having jumped in recent weeks.
John Marshall Bancorp (JMSB), Capital City Bank (CCBG) and First Citizens (FCNCA) are below or are testing their 50-day lines.
Follow Michael Molinski on Twitter @IMmolinski
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