Western Alliance and Comerica Could Climb Further
Western Alliance Bancorporation (US:WAL) and Comerica (US:CMA) are two regional bank stocks with very low valuations. Moreover, in recent weeks, a number of large investors have been buying both stocks on weakness, according to data from Fintel.
Both names saw big moves on May 5, with WAL stock rocketing almost 50% higher and CMA stock up almost 17% on the day.
And while both of the banks are far off their 52-week lows, and it is also noteworthy that JPMorgan (US:JPM) recently defended both stocks, both names could easily benefit from further covering by short sellers.
Finally, both WAL and CMA have a few other significant, positive catalysts.
Low Valuations and Large Purchases on Weakness
Going into the new trading week, Western Alliance has a forward price-earnings ratio of just 4.3 and a low, trailing price-book ratio of just 0.7. Similarly, CMA’s P/E ratio was a very undemanding 5.4, while its trailing price-book ratio was a rather low 4.8.
Despite their intense rallies to end last week, both WAL and CMA have been pummeled during the regional bank crisis. In the three months that ended on May 5, WAL had tumbled 65%, while CMA had sunk 52%.
A number of large investors have made sizable purchases of both companies’ shares on weakness in recent weeks. According to data compiled by Fintel, the State of North Carolina reported purchasing almost 59,000 shares of CMA stock on May 4. On April 3, the Invesco Zacks Mid-Cap ETF (US:CZA) reported buying 21,116 shares of the bank’s stock, while the Czech National Bank disclosed on April 17 that it had purchased 15,429 shares. Finally, the Arizona State Retirement System reported a purchase of nearly 38,000 shares on April 27.
Meanwhile, Western Alliance’s shares were in the sights of Citadel in March. The hedge fund controlled by well-known billionaire investor Ken Griffin reported that it had bought a 5.3% stake in the regional lender. More recently, Fintel data showed that Premier Fund Managers reported buying over 750,000 shares of the name on May 5, while Barclays disclosed a purchase of more than 125,800 shares on May 4 and Janney Montgomery Scott reported picking up more than 75,000 shares on April 28.
JPM Defense on Weakness and Potential, Positive Catalysts
JPMorgan helped spur a powerful rally of regional bank stocks on May 5 by upgrading the sector to ‘neutral’. After reviewing the sector’s first-quarter data, JPMorgan believes that its deposit outflows were not as large as some had predicted.
Moreover, the firm believes that, because of many investors’ negative views toward the sector, many regional bank stocks could rally a great deal in the “intermediate term.” In conjunction with the note, the firm raised its ratings on both Western Alliance stock and Comerica stock to ‘overweight’ from ‘neutral’.
With Friday’s burst of investor sentiment in both CMA and WAL in the wake of JPMorgan’s note, both names finished well and are now well above their 52-week lows. Specifically, Comerica closed at $36.44 versus its 52-week low of $28.40, while WAL finished at $27.16, versus its 52-week low of $7.46.
However, both stocks could climb much further due to short squeezes, Fintel data suggests. Comerica‘s Gamma Squeeze Score — a metric developed by Fintel indicating “which companies have the highest risk of experiencing a gamma squeeze” — puts it at 903 out of 37,893 stocks. For its part, WAL is ranked at 1,357 out of 4,582 stocks by Fintel when it comes to the likelihood of its facing a short squeeze.
Additionally, multiple analysts have stated that the SEC could decide to curb the short selling of regional bank stocks soon, while the FDIC could in the short term raise the $250,000 limit on the value of the accounts that it insures.
And with the Federal Reserve likely having finished raising interest rates for the foreseeable future, rates could drop, easing the deposit outflows of both WAL and CMA and reducing the resulting pressure on their net interest margins.
Finally, over the longer term, Phoenix-based WAL could benefit from the current construction of many factories in Arizona, while Dallas-based CMA could get a lift from the rapid growth of that city’s northern suburbs.
This article originally appeared on Fintel
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