To date, second-quarter earnings reports from the major domestic banks have been solid. Bank stocks will be further tested this week amid a spate of profit updates from regional banks. The group was plagued by deposit departures earlier this year due to a string of bank failures.
Some of the largest bank collapses in the U.S. history were witnessed earlier this year, and that weighed on the Invesco S&P 500 Equal Weight Financials ETF (RSPF ). As an equal-weight exchange traded fund, RSPF isn’t as dependent on the largest banks as are its cap-weighted rivals.
However, RSPF is showing signs of life, as highlighted by a 3.73% gain over the past month. If regional bank stocks show investors that deposit flight is a thing of the past, that could assist RSPF. On the other hand, there are some catalysts in place for the Invesco ETF, including its value leanings. Those are meaningful at a time when some analysts believe many bank stocks are trading at discounted multiples.
Review RSPF for Good Deals
While this year brought some epic bank failures, a point in favor of RSPF is that, broadly speaking, the U.S. banking system is healthy. That much is confirmed by the recent passing of the Federal Reserve’s annual stress tests and subsequent dividend increases by multiple RSPF member firms.
“Our key takeaway is that the banking system remains well capitalized,” Morningstar analyst Eric Compton said. “The system has enough capital to handle a severe recession and not only survive but also continue to lend to and support the economy. From a capital perspective, the system is healthy.”
Then there’s the point that close to 10 of RSPF’s 74 holdings are considered undervalued today. That group includes Comerica (CMA), Truist Financial (TFC), and US Bancorp USB. In modest fashion, Comerica commands the largest allocation in RSPF at a weight of 1.52%.
Comerica can be considered a super-regional bank. It has significant operations in some of the largest state-level economies, including California, Texas, and Florida. Those are the three biggest states by population.
“Comerica has a relatively small energy portfolio, which we expect will remain at 5% or less of the total loan book,” added Morningstar. “The bank also has two business units primarily focused on serving institutional investors: the technology and life sciences unit and the equity fund services unit. Overall the bank has a diversified set of commercial-focused lending and advisory segments.”
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