Bank Bonds Point to a Huge Rally
By Jim Cramer
3/23/2010 2:33 PM EDT
Is there a big bank stock rally coming? Every time I analyze this group I like to figure out how the bank bonds are doing. My colleague Matt Horween, who follows these bank bonds like a hawk, indicates to me that they are on fire, just a very big run. Some bonds, like the leftover Bear Stearns bonds, just put on 5 points, taking them to par in the last week. That's an extreme example but they are all on the move. We saw this same kind of move in Zions Bancorp (zion - commentary - Trade Now), the best performer in the S&P 500, when the bonds zoomed ahead of the stock itself.
To me that means we are shortly about to see a powerful rally in the common. It makes so much sense, too, when you think about it, because so many people are worried about punitive banking regulation that now seems like a thing of the past. No more dilution, no need for more offerings for now for most banks, maybe we are home-free.
I think Citigroup (C - commentary - Trade Now) could be ready for launch, and I think the government won't start selling until we get to a 52-week high. JPMorgan (JPM - commentary - Trade Now) seems to be breaking out right now and represents great value. You know I think that Bank of America (BAC - commentary - Trade Now) and Wells Fargo (WFC - commentary - Trade Now) are going to show that this quarter showed a definitive peak in bad assets.
In the meantime I think that Huntington Bancorp (HBAN - commentary - Trade Now) and First Horizon (FHN - commentary - Trade Now) make a great deal of sense as specs and BB&T (BBT - commentary - Trade Now) could be the big growth story out there.
And yes, I like this new deal coming, this First Interstate, as a great play on Western banking.
This move should be swift. It should be in conjunction with the passing of financial legislation.
Get ready for it. We are on the verge of it happening. As Matt says, the bank bonds never lie. Who knows, by this time next year we could see big earnings, a reversal of reserves and the beginning of the dividend comebacks! |
