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A Buying Opportunity in the Regional Banking Sector

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Executives at regional banks are buying shares of their own companies at the fastest rate we’ve seen since the first quarter of 2020.

Early 2020 was, of course, when the reality of the pandemic hit home. And it was a great time to go long on regional banks.

Coming out of that first quarter, the regional banking sector went on an incredible run, vastly outperforming the S&P 500 over the following 18 months.

Chart: Regional Banking's Outperformance

Paying attention to insider buying in the spring of 2020 would have been a smart move.

And it would be another smart move to start following what regional banking insiders are doing right now…

Now, this sector has taken a terrible beating this year.

Year to date, the SPDR S&P Regional Banking ETF (NYSE: KRE) has lost almost half of its value.

Chart: Regional Banking Takes a Nasty Fall

Regional banks’ share prices have tanked in part due to the very high-profile failures of Silicon Valley Bank, Signature Bank and First Republic Bank.

Fear has engulfed the sector, and share prices reflect that.

The three major bank failures were caused by large paper losses on bond portfolios, which triggered massive outflows of deposits.

These failures left the market worried about what was happening at other regional banks. And that’s why I view the recent aggressive buying by executives in this sector as a very encouraging sign.

These folks know exactly what is happening inside their banks. If their banks’ deposit bases weren’t holding up well, they wouldn’t be buying.

The 143 banks held in the SPDR S&P Regional Banking ETF currently trade at just 6.97 times earnings and 0.81 times book value.

On top of that, the SPDR S&P Regional Banking ETF offers a dividend yield of almost 4.2%.

Simply put, I like this opportunity.

With this investment, we don’t have to try to figure out which regional banks will succeed. Instead, we can gain exposure to 143 different regional banks.

I’m sure some of them have tough times ahead. But the majority of these companies are going to do very well.

Owning this fund gives us widely diversified exposure to a beaten-down sector.

We might not see a big rally in the short term, but as time passes and concern for the sector lessens, this is going to be a solid long-term investment.

The Value Meter rates the SPDR S&P Regional Banking ETF as “Extremely Undervalued.”

The Value Meter

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