Stock Power Daily — Bearish Big Bank Shouldn’t Collapse

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Bearish Big Bank Shouldn’t Collapse — but It’s Got More Problems

  • After the recent collapse, bank stocks look rough.

  • A deep dive into our Stock Power Ratings system shows you that certain bank stocks are not good investments.

  • Today’s Stock to Avoid is a massive $145.6 billion bank that rates a “Bearish” 22 out of 100 on our proprietary system.
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Matt Clark,
Research Analyst

Silicon Valley Bank’s collapse last week hammered financial institutions large and small.

Since last Wednesday through Monday:

  • The SPDR S&P Bank ETF (NYSE: KBE), an exchange-traded fund that holds larger U.S. banks, lost 20%.

  • The SPDR S&P Regional Banking ETF (NYSE: KRE), a similar regional bank fund, fell 23%.

Many bank stocks posted a solid recovery on Tuesday after the government quelled bank-run fears. But this situation put the industry under the spotlight for all the wrong reasons.

And it’s created a significant headwind in the banking industry which means several bank stocks of all sizes are ones to avoid.

I started screening stocks through Stock Power Ratings, and one big name stuck out to me: Wells Fargo & Co. (NYSE: WFC).

Let’s see why…

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From our Partners at Stansberry Research.

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The Good Thing About Value

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Michael Carr,
Editor, The Banyan Edge

Clint Eastwood must be a value investor. He understands that things can be good, bad and ugly.

I can’t think of a better description of value investing, a strategy that involves targeting companies with strong fundamentals and trading at a fair price.

Just like Clint, I’ll start with the good aspects of value. I’ll cover the bad and ugly later this week.

The good is what everyone knows about this strategy. It’s probably the most popular style of investing — at least when popularity is measured by how many people claim to invest this way.

Value investing has a long history. It dates back to at least 1934 when Ben Graham published his book, Security Analysis. Graham taught Warren Buffett decades after that and Buffett made his fortune using the principles Graham laid out.

And now the masses want to be like Buffett. That’s for good reason at first glance.

Long-term returns for the strategy are strong. According to one proponent of value:

Over the past 50 years, from 1968-2020, stocks in all three of Graham’s categories outperformed the S&P 500. Against an annual average rise in the market index of 10.3%, the bottom 20% by [price-to-earnings ratio] rose by 14.6%, the bottom 20% by [price-to-book value] by 13.9%, and the top 20% by dividend yield by 12.4%.

This sounds great.

The chart below shows data for value from 1926 through 2007. The uptrend is interrupted by occasional downdrafts.

This chart ends in 2007. And I’ll tell you why when I discuss the bad tomorrow.

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