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Advice for Fed: Don't Do the Twist Again

Written by: Richard Suttmeier 06/20/12 - 10:18 AM EDT
Tickers in this article: JPM WFC

The BKX has 10 buy-rated stocks (4-Engine) according to ValuEngine with the other 14 rated hold (3-Engine).

Last 12-M Return (%): Those in red are lower over the past 12 months. Those in black are higher.

Forecast 1-Year Return (%): No big movers as First Niagara Financial Group(FNFG) is expected to drift lower by 3.3%, while US Bancorp(USB) could gain 9.9% over the next 12 months.

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Value Levels: Investors looking to buy should enter a good-'til-canceled limit order to buy weakness to a Value Level. This applies to adding to an existing long position, or to covering a short position.

Pivots: This price level is between the Value Levels and Risky Levels and tends to be a magnet in reversal-oriented trading.

Risky Levels: Investors looking to book profits or add to a short position should enter a GTC limit order to sell strength to a Risky Level.

This "buy and Trade" strategy is used in the ValuTrader Model Portfolio available at www.ValuEngine.com. Click on the Newsletters tab.

FDIC Data for the 24 Stocks in the BKX

The above data come from the FDIC Quarterly Banking Profile for the first quarter of 2012. I sorted the banks by assets so that the four "too big to fail" banks are listed first. JPMorgan Chase(JPM) is the largest by assets with $1.975 trillion.

The bank with the largest portfolio of Construction & Development Loans (C&D) is Wells Fargo, with $19.2 billion on the books of the bank. There will likely be problem loans in this category, but the exposure is well below the regulatory guidelines at 25.9% of risk-based capital vs. the 100% guideline.

There are no "red flags" in terms of exposures to C&D and CRE loans. None of the Regional Banks have a C&D loan ratio of more than 100%.

New York Community Bancorp(NYB) and People's United Financial(PBCT) have overexposure to CRE loans vs. risk-based capital with ratios of 710.5% and 304.5%, respectively. There are no loan pipeline issues.

In my opinion you can "buy and trade" the regional banks between value levels and risky levels, but longer term, the risk/reward is a coin toss at best.

At the time of publication, the author did not own shares of any stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.