Regional Banks Are Bouncing Back – And You Can Profit

Our contrarian thesis in regional bank stocks has played out well in the past few weeks, as other investors are beginning to see that these companies are under-appreciated, under-priced, over-hated and over-shorted.  The iShares Regional Banks (NYSE: IAT ) ripped higher by more than 8% in the past week alone.  And I still think that many of these stocks have a long way to go, since fair value in some cases is 2x, 3x, and even 5x higher than current levels. Super-regional southern bank Regions Financial Corp. (NYSE: RF ), for instance, traded as high as $32.50 in 2007, then fell as low as $2.27 in 2009 - a decline of 93% in just two years. RF's recovery has gotten off to a much slower start than peers like U.S. Bancorp (NYSE: USB ) because it made a lot more iffy loans along the Gulf coast. But over the past six months, it has become clear that super-low interest rates will allow RF to build enough reserve against losses. Additionally, other distressed-debt firms are stepping up to take problem mortgages off their hands.