A Stock With Momentum From A Surprising Sector…
It’s been some time since my system has flagged a financial stock as a “buy”. That is, until a couple of weeks ago.
But as I wrote about recently, it seems that momentum is beginning to pick up in the two weakest-performing sectors of the year: financials and energy.
Now, in most cases, the average investor would take this information and simply buy one of the big, well-known banks like JP Morgan Chase (NYSE: JPM) or Wells Fargo (NYSE: WFC).
But with the Maximum Profit system at our disposal, my premium subscribers and I can find a lesser-known bank stock with potentially far more upside.
A Small Financial Stock With Momentum…
And that’s exactly what turned up a couple of weeks ago with Cadence Bancorporation (NYSE: CADE).
CADE is a regional bank, headquartered in Houston, Texas.
Let’s take a look at some of the reasons it was flagged as a buy, aside from showing strong momentum.
Cadence is a relatively small financial company with just over $18 billion in total assets. For comparison, behemoth banking conglomerate JPMorgan Chase has more than $3.2 trillion in total assets.
The regional bank operates 99 locations in Alabama, Florida, Georgia, Mississippi, Tennessee, and Texas. It provides businesses and consumers a wide range of financial solutions (i.e. Consumer banking, specialized lending, wealth management, insurance, etc.).
One of the beauties about regional banks is it’s a much simpler business to understand than larger institutions. They make money the old-fashioned banking way… earning interest income on deposits. Sure they’ll make a little money here and there on mortgage loans or small-business loans, but their bread and butter is banking.
It takes in deposits, pays a low interest rate, then lends that money out at a higher rate. The “spread” it earns is the interest income, which accounted for 90% of revenue for the bank in 2019.
What’s Behind The Momentum
Cadence’s momentum has likely been from the fact that regional banks are trading for dirt cheap right now. To see what I mean, let’s take a look at book value.
Book value is the simplest and best way to value a bank because it represents the bank’s basic assets and debts. Unlike many other industries, the book value of a bank gives you a good idea of its liquidation value. If you can buy a bank for less than book value, it’s a great deal.
At the time we added the stock, Cadence was trading for a price-to-book (P/B) value of 0.80. This is up from its ridiculously low P/B ratio of 0.2 after the coronavirus-induced selloff in early April. At that point, shares of Cadence were trading for less than $6 per share.
Obviously, investors have been buying shares of this discounted asset, pushing shares higher. When we first stepped into the stock over at Maximum Profit, they were trading for over $13 a share.
As I’m writing this now, they’re already over $16. That’s a gain of roughly 23% in just a couple of weeks.
Action To Take
Don’t think you’ve missed the boat on this one. Shares still have a bit to go to recover their pre-covid-19 highs in February. So you could still probably do well with CADE if you got in today…
I’d be remiss, however, if I didn’t add a couple of caveats here…
This is a smaller regional bank so shares can see some wild swings. Also, if the bank fails to attract new customers — and deposits — that will crimp its ability to earn interest income, and shares could suffer because of this.
Also, of course, just because a stock traded at a previous price doesn’t necessarily mean it will trade at that price again. But Cadence is still trading at a roughly 50% discount to its average historical book value. That bargain is providing strong tailwinds for the stock.
Either way, we will rely on our clear buy and sell signals over at Maximum Profit to tell us when it’s time to cash in our gains.
In the meantime, if you’d like to learn more about how our system works – and learn about what I think could be the biggest profit opportunity of 2021 – go here right now.