Small-cap bank stocks on the move
So far this earnings season companies have good things to report. We've seen roughly 80% of companies beat consensus analyst estimates, and most companies posting moderate growth over the same period last year.
This week we saw Caterpillar (NYSE: CAT) return to profitability and raise its forward guidance. Whirlpool (NYSE: WHR) beat expectations with profits doubling. Macy's (NYSE: M) raised its 2010 guidance as well, and UPS (NYSE: UPS) saw profit rise by 33% as it beat analyst expectations on earnings per share.
One of the fastest moving sectors in the small-cap universe has been regional bank stocks. This week alone stocks like Frontier Financial (NASDAQ: FTBK), Hampton Roads Bankshares (NASDAQ: HMPR), and Bank of Granite (NASDAQ: GRAN) are moving sharply higher on high volume as traders and investors alike begin to see stabilization in the sector. Many small-cap bank stocks were priced for failure, and when the probability of bankruptcy declines, the surge in share price can be enormous.
If you dip a toe and start buying shares in stocks in this sector, be sure you do some due diligence and research the stock first. Financial stocks require their own type of analysis such as looking at reserves for loan losses, capital levels, and non-performing loans. But now is a good time to begin assembling a watch list. There will still be plenty of time to get into the best banks and those that survive are likely to see their share prices trend higher as they get back to full health.
***I've discussed dollar cost averaging over the past couple of weeks. Your timing is rarely going to be perfect, even when you know the stock you want and you're ready to put in your order. Because timing is not perfect, you can control your overall cost of buying stock by using averaging techniques.
When you dollar cost average you are investing the same dollar amount in one company several times. The effect of this is that the average price will be higher than your first order if the stock is climbing, but lower if the stock is declining.
If you find stocks that you consider to be trading at super cheap valuations, you can worry less about timing and more about growing profits for the long-term. Timing is important because naturally you want to buy low and sell high. But if you are looking to the long-term and a stock is not moving rapidly, the short-term timing is not as crucial as the stock selection itself.
