Uncertainty surrounding the economic impact from the coronavirus crisis, along with near-record-low interest rates, have seen investors avoid regional banking stocks like the plague so far this year. The battered group has plunged 40% in 2020 compared to the S&P 500's year-to-date (YTD) fall of around 9%.
While smaller financial institutions indeed face challenging times ahead, regional banks sit well placed to ride out the pandemic due to risk-reduction measures they implemented in the aftermath of the 2007 to 2009 financial crisis. "Banks have put more emphasis on concentration limits, relationship banking and profitability versus being volume-driven," Wedbush analyst Peter Winter wrote in a note cited by Barron's.
Furthermore, as economic conditions improve, the three regional banks discussed below may see further upside given they trade at attractive price-to-book ratios (P/B ratios) relative to their rivals. From a technical standpoint, each stock moved higher from key technical support during Friday's trading session. Let's look at each issue in more detail.
Regions Financial Corporation (RF)
Birmingham, Alabama-based Regions Financial Corporation (RF) provides banking and bank-related services to individual and corporate customers, primarily in the Southeastern and Midwestern United States. As part of a three-year growth strategy outlined last year, the bank emphasized maintaining healthy capital levels to help it outperform in an evolving operating environment. The company has a P/B ratio of 0.62, well below the regional banks industry average of 0.80. Trading at $10.32 with a $9.90 billion market capitalization and offering a 6.01% dividend yield, Regions Financial stock has tumbled almost 40% YTD as of May 11, 2020.
The bank's shares have traded within an ascending channel since bottoming out on March 19. In more encouraging price action, the stock rallied nearly 5% Friday from the pattern's lower trendline to close above the 50-day simple moving average (SMA). Those who buy at these levels should place a stop-loss order under this month's low at $9.62 and eye a move up to $13, where price finds major resistance from a horizontal line that connects several prominent swing lows over the past year.
Citizens Financial Group, Inc. (CFG)
With a market cap of $9.47 billion and offering a market-beating 7.03% dividend yield, Citizens Financial Group, Inc. (CFG) provides retail and commercial banking services to customers primarily in the New England, Mid-Atlantic, and Midwest regions. The bank continues to focus on growing its balance sheet and managing expenses, placing it in a strong position as conditions stabilize in the second half of the year. It has a P/B ratio of 0.46, significantly below its five-year average of 0.80. Citizens Financial stock has slumped over 40% on the year but recovered 10% in the past month as of May 11, 2020.
Like Regions, Citizens' share price has remained entrenched in an ascending channel since March. Last week's retracement to the pattern's lower trendline and subsequent close above the 50-day SMA provide active traders with a high-probability entry point. Those who buy here should set a take-profit order near $30.50 – an area on the chart that encounters overhead resistance from a horizontal trendline and downward sloping 200-day SMA. Exit long positions if the stock fails to hold the psychological $20 level.
The PNC Financial Services Group, Inc. (PNC)
The PNC Financial Services Group, Inc. (PNC) operates as a diversified financial services company offering retail banking, institutional banking, asset management, and residential mortgage banking. Japanese investment bank Nomura Holdings upgraded PNC's stock to "buy" from "neutral" in April, saying that the bank's shares have factored in the degree that PNC will under-earn its longer-term potential in 2020. Although the firm has the highest P/B ratio of the three stocks at 0.90, the metric still sits 26% below its five-year average. As of May 11, 2020, PNC Financial stock has a market value of $44.56 billion and trades 32.76% lower YTD. Investors also receive a 4.38% dividend yield.
PNC shares have continued their grind higher within a rising wedge over the past six weeks. A Friday rally from the pattern's lower trendline, coupled with a convincing close above the 50-day SMA, paves the way for a test of the August 2019 swing low at the $120 level over the medium term. Manage risk by placing a stop below the rising wedge and amending the order to the breakeven point if price closes above the April high at $112.90.