Remember when we bailed out the banks during the Great Recession?
“Too big to fail” was the mantra that every politician and every financial expert was chanting on TV – while America sat back, biting their nails – as the government paid off the banks debts and executives walked away with HUGE bonuses.
Yeah… that was crazy and brings back a lot of memories – not many of them good.
So, I’m not ashamed to say – that I get a little joy out of watching bank stocks get beat up in this weird, COVID-19 market volatility.
Of course, with that said, are we about to witness an incredible profit opportunity?
Maybe…
Let’s take a look at the landscape.
Bank stocks have been experiencing a lot of volatility in recent months and there was a recent sell-off due to the results of the Federal Reserve’s annual stress tests.
According to the Fed’s assessment, the largest banks – such as Goldman Sachs (GS), JPMorgan Chase (JPM) and others – passed at “strongly capitalized”, which is good…
However, this positive assessment didn’t stop them from stopping buybacks, limiting second quarter’s dividend payments, and capping future payouts on recent earnings.
This is sure to make the dividend-thirsty crowd very unhappy…
Which, more than likely, was the reason for the massive sell-off bank stocks experienced over the past week.
Those who freaked out and sold because of the cap on dividends, dumped enough stock to send a lot of bank stock prices to the basement…
The KBW Bank Index (BKX) was down 4.1%, shares of Goldman Sachs Group (GS) and Wells Fargo (WFC) each dropped more than 5% as each got news they weren’t expecting.
However…
Their freak out may be a HUGE profit opportunity for those who are looking to get a solid bank stock at a bargain price.
As one Wall Street analyst put it, “Banks will likely give back some recent gains. Use extended weakness as [a] buying opportunity.”
And this analyst has ranked a lot of the big names in the banking industry as “outperform” – with names like Bank of America (BAC), PNC Financial Services (PNC), and Fifth Third Bancorp (FITB) topping the list.
Some of the big boys in the industry has already suspended their buybacks though – call it “COVID-19 preparation” and are not really looking to start them again until 2021…
With the Fed putting the kiboch on dividends – they added a lot of uncertainty to an already uncertain time.
However, the fact remains that they haven’t put the kibosh on dividends yet – even though there are a LOT of politicians and policymakers making a push to do so.
Want to add even more uncertainty to the mix?
Banks will have to resubmit their capital plans later in the year – or basically, what they plan on doing with the money they take in over the year – whether that be profit or investing customer deposits…
But the outcome of those plans could be adding even more risk for those looking to make some money from these dividends.
But even some of the big wigs on Wall Street aren’t really that worried…
There’s no evidence that there will be any halt put on dividends – other than a few outliers – such at Wells Fargo, which dividends have been put on “cut watch.”
One analyst reassured investors recently when he said, “We expect dividends are largely unchanged for our coverage, with the exception of WFC, where a dividend cut seems likely given recent earnings pressure as the current quarterly dividend exceeds estimated net income from Q319-Q220E.”
So, what does all that mean?
It means, in a nutshell, that bank stocks right now are not as attractive to the dividend crowd as they are to those of us who are just looking to make a little cash from a rebound.
You know the old saying…
“Invest when there’s blood in the streets.”
And we’re not talking real blood or tying this idea to what is going on with our country civil society…
But since the bank industry seems to be a little beat up right now – it’s “their” blood that we’re making reference. They’re leaking – but not in jeopardy of bleeding out.
They’ll heal…
And when they do – we can be there to pick up the profits!
Now, I can’t tell you for sure that there are any bank stocks on the GorillaTrades’ radar – but you can bet that if there is – subscribers to our trading service will be the FIRST to know!
If you’d like to take to be there for our next recommendation – please, consider subscribing to GorillaTrades today…
Let us take a bit off your plate.
However, if you’d rather head down your own path – we totally understand…
Just do yourself a favor and take a look at the banking industry – it may be something worth your while.
“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” – Robert Frost