Banks That Can Snap Back Hard - TheStreet

Banks That Can Snap Back Hard

These banks, down for the year, are showing improving financials.
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Updated from 7:59 a.m. EDT

If you're expecting Mr. Market to ring a bell and call a bottom for you, get ready to miss the bulk of the move higher.

Right now, in certain financial stocks, there is a serious disconnect between a few companies' current valuations and their future underlying business. We have recently seen a run in names such as

Bank of America

(BAC) - Get Report

,

National City

(NCC)

, and

Wells Fargo

(WFC) - Get Report

, but there are still plenty of plays out there.

We set up a portfolio at Stockpickr called Snapback Bank Stocks to reflect this. These are banks that are down substantially for the year but that have recently shown improving fundamentals.

Here are the requirements we used for the portfolio:

    Heavy short interest in these stocks. We want the shorts laying all over these stocks, so when good news is announced, they will get caught in a massive short squeeze.

    Declining nonperforming loans, or NPLs. We want companies that are actually experiencing a decline in defaults.

    Decreasing capital reserves into the company's loan loss provisions portfolio. This is similar to decreasing NPLs, because these companies believe the bulk of write-downs will be substantially lower in the future than in the past.

    Trading at or below tangible book value.

    Improving company credit and declining credit default swaps, or CDS, spreads.

    The Snabpack Banks portfolio includes such names as

    First Horizon

    (FHN) - Get Report

    ,

    SunTrust Banks

    (STI) - Get Report

    and

    KeyCorp

    (KEY) - Get Report

    To read the rest of the story, please click here.

    A note from James Altucher:Every weekend I send an email to Jim Cramer and several hedge fund managers about the most interesting portfolios posted on Stockpickr that week. Usually those portfolios not only list stocks according to atheme but also offer significant analysis as to why the stocks are cheap.Here are some examples: Here's the challenge: Build a portfolio at Stockpickr.com with greatanalysis, and send me the link. Each great portfolio (with analysis)will get posted on TheStreet.com with your byline (as a "StockpickrGuest Columnist") and will be included in my email I send to Jim and the otherhedge fund managers on my list.

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