Banks that have made large loans to energy companies have rebounded strongly in recent months, thanks to a rally in energy prices.
Texas area lenders including IberiaBank (IBKC) - Get Report , Legacy Texas Financial (LTXB) - Get Report , BOK Financial (BOKF) - Get Report , Prosperity Bancshares (PB) - Get Report , Southwest Bancorp (OKSB) and Investar (ISTR) - Get Report -- rose 26%, on average, from February lows, compared with a 15% move in the Nasdaq Bank Index and a 32% spike in oil prices, according to a Feb. 17 note from financial adviser Hovde Group.
Analysts have nonetheless held off on upgrading the stocks, citing lack of a coherent "investable theme" as both stocks and energy prices were falling precipitously or rising. Predicting volatility in oil prices "is akin to the difficulty in forecasting the future direction of interest rates," the advisory firm said. "In other words, it's nearly impossible,"
Oil was trading at $49.22 a barrel on Monday morning, up from February lows of $26.05.
"Through the recent volatility, our stock ideas have been defensive in nature (Southwest and Investar), and not completely dependent on the direction of energy prices," the analysts added.
BOK Financial, which has a high exposure to oil volatility and has increased reserves to cover defaults, is considered an "energy bellwether" of the group due to long-term performance. BOK Financial has climbed 34% from its one-year low of $45.23 to trade at $60.77 as of Monday.
"Exposures to energy remain manageable for most U.S., Canadian, and European banks," Morningstar analysts said in a May note, pointing out that U.S. banks tend to have more reserves to cover losses than Canadian and European peers.
But investors shouldn't get too optimistic about oil just yet, Sandler O'Neill analyst Stephen Scouten said. The commodity, which peaked above $107 in 2014, dropped to about $26 a barrel in February year amid a global supply glut. That made it tougher for energy companies to repay loans taken out when revenue was much higher.
"At $47, we are not out of the woods," Scouten said. "You are likely still going to see losses and credit migration for a couple more quarters."
On the flip-side, he said, it's positive that long-term traders are regaining interest in oil. "I think the long terms guys are starting to kick the tires again now," he said.