I have to admit that I was not familiar with Umpqua Holdings (Nasdaq:UMPQ) until the stock appeared on my bullish scan the other evening. The company is the fourth largest banking operation in the Pacific Northwest in terms of deposits.
My scans are built to filter out stocks that don’t see enough trading volume to write about in a column such as this. I have filters for price as well so that penny-stocks don’t dominate my lists. UMPQ managed to make it on to the bullish list because the trading volume has increased considerably over the last few months.
UMPQ has been struggling over the last two months and that is due to a merger with Sterling bank and an earnings disappointment. We see the pullback on the daily chart, but we also see support at the $15.31 level from the low back in September. The stock has recently come out of an oversold status when the 10-day RSI hit its lowest level since January 2009. Back then, the stock moved from $6 a share to $12 a share in the next 12 months. While I don’t expect that type of move this time, I do see a nice bounce coming for UMPQ.
The weekly chart shows the previously mentioned support level and it also shows how the 10-week RSI reading has been a pretty could trade indicator. Anytime the RSI has reached the 40 level over the last year and a half, the stock has rallied nicely over the coming weeks.
UMPQ has performed well over the last few years, but it the recent pullback has caused it to underperform the market. The company does pay a dividend and the current yield is 3.8% which isn’t bad.
The sentiment toward the stock is extremely pessimistic. The short-interest ratio is one of the highest I have seen lately, coming in at 19.7. And remember the ratio is based on the number of shares sold short divided by the average daily trading volume which as I pointed earlier has been increasing. UMPQ doesn’t have much analyst coverage with only nine following the stock. Of the nine, four rate it a “buy”, four rate it a “hold” and one rates it a “sell”.
The combination of the oversold condition, the modest dividend and the sentiment make UMPQ an attractive investment right now. Now that the merger with Sterling has settled, the company can focus on expanding its market share in the Pacific Northwest. This isn’t a quick investment that is going to yield 50% in the next few months, but I can see it producing a nice 25% or more in the next six to nine months.
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