Financials remain an important sector of the market, but the effects of the 2008 banking crisis continue to weigh heavily on parts of the group.
That's why Matt McCormick, portfolio manager with Bahl & Gaynor Investment Counsel, is telling Macke and Nesto that he can't recommend making a broad bet on the banks. McCormick has been searching for opportunities in the group, though he's picking his spots carefully.
"I'm being very selective," he says. "I do like the Canadian banks. I like some regional guys, but I'm not overweight my positions right now." (McCormick discussed Bank of Nova Scotia (BNS) in an earlier clip on dividends.)
Regional banks that weren't tied to TARP and that pay attractive dividends would be the smartest plays for investors, he says, but choice is critical and has to be company-specific. McCormick's firm owns Texas-based Cullen/Frost Bankers (CFR), which has a 3.1% dividend yield. He says Fifth Third (FITB) appears to be doing well, but he doesn't have a long position in the stock because of the bank's exposure to weaker states like Ohio and Michigan.
Elsewhere in the sector, "megaregional" U.S. Bancorp (USB) may be worth a look, he says, but the preferred approach would be to wait for another dividend increase before owning the stock.
Generally speaking, banks operating primarily in the Great Plains and the Midwest are likely safer investing options -- McCormick names Montana's Glacier Bancorp (GBCI) as a better name -- but he would avoid the West Coast, the Northeast and parts of the Southeast.
"I'm not really optimistic on many areas of the country … I like Texas, and I like Canada, and that's about it," he says.
While buying banks for their buyout potential might have worked in the past, that's not the approach to take now, with M&A in the sector having waned. What investors should be concerned with are banks with good dividend yields, strong geographic bases and freedom from government bailout funds, he stresses.
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