Money Centers and Regional Banks Remain Vulnerable

NEW YORK ( TheStreet) -- The finance sector is 8.5% overvalued with the banks major regional industry 17.2% undervalued. This is reason enough for investors to like the buy rated banks among the nine that I have been profiling in my analysis of the biggest FDIC-insured financial institutions. However, investors and Wall Street continue to ignore the stress that I found in the banking system in the FDIC Quarterly Banking Profile for the third quarter of 2012.

If you are investing or trading bank stocks you should read my post from Dec. 5 FDIC Reports Positive Banking System Data . Please study the table of data that I put together to explain that while the banking system has made slow but steady progress in unwinding toxic assets, that the level of noncurrent loans remain elevated versus levels at the end of 2007 when the great credit crunch began.

Back on Nov. 1, I wrote Bank Stocks Have Symptoms of QE Fatigue where I profiled the nine stocks I am profiling again today. Despite Wednesday's rebound for the industry seven of the nine stocks are lower today then when I wrote the Nov. 1 story.

Looking at ratings from www.ValuEngine.comtoday versus Nov. 1, only one stock was downgraded.

On Nov. 1 only two of our nine benchmark bank stocks were below their 200-day simple moving averages. Today we find five of nine below their 200-day SMA.

Eight of the nine bank stocks have gains of 20.6% to 81.3% over then last 12 months. None are projected to come close to these performance measures over the next 12 months.

All nine banks stocks are cheap based upon 12 month trailing price-to-earnings ratios between 7.7 and 15.3.

All nine stocks are in the make-up of the 24 bank stocks in the PHLX KBW Banking Index ( BKX).

Chart Courtesy of Thomson/Reuters

The daily chart for the BKX ($48.64) shows that the index representing the nation's biggest banks is trading between its 200-day and 50-day simple moving averages at $47.25 and $49.42. The BKX is well below its post-recession high of $58.81, set during the week of April 23, 2010. A close this week below the five-week modified moving average at 48.82 keeps the weekly chart profile negative indicating risk to the 200-week SMA at $44.99. A weekly close below my quarterly pivot at $47.55 indicates risk to this month's value level at $45.18.

The above table shows data from ValuEngine.com covering nine stocks in the BKX.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last twelve months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next twelve months. Stocks with a black number in the table are projected to move higher by that percentage over the next twelve months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: Level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength. Here are comments on the five construction stocks that were upgraded this morning:

Bank of America ( BAC) ($10.46 vs. $9.32 on Oct. 31): BAC remains buy rated according to ValuEngine with a reasonable P/E and is above its 200-day SMA at $8.43. The stock set a 2012 high at $10.56 on Wednesday with upside to the 200-week SMA at $11.46 on a positive weekly chart. My monthly value level is $7.51 with a weekly pivot at $9.72 with my annual risky level at $15.72.

BB&T ( BBT) ($27.86 vs. $28.95 on Oct. 31): BBT still has a buy rating, a reasonable P/E but is below its 200-day SMA at $30.76. The weekly chart profile is negative with the 200-week SMA at $26.50. My annual value level is $25.36 with monthly risky level at $29.60.

Citigroup ( C) ($36.46 vs. $37.39 on Oct. 31): Citi still has a buy rating with a favorable P/E and is above its 200-day SMA at $31.86. The weekly chart profile is neutral with the 200-week SMA at $36.21. My annual value level is $30.25 with my weekly risky level at $36.83.

JP Morgan Chase ( JPM) ($41.20 vs. $41.68 on Oct. 31): JPM still has a buy rating, a favorable P/E and is above its 200-day SMA at $39.23. The weekly chart profile is neutral with the 200-week SMA at $38.87. My semiannual value level is $39.47 with a quarterly pivot at $40.94 and annual risky level at $41.66.

PNC Financial ( PNC) ($55.89 vs. $58.20 on Oct. 31): PNC still has a hold according to ValuEngine. PNC has a favorable P/E but is below its 200-day SMA at $61.14. The weekly chart profile is negative, but weakness has held its 200-week SMA at $54.63. My semiannual value level is $53.42 with my monthly risky level at $56.33.

Regions Financial ( RF) ($6.57 vs. $6.52 on Oct. 31): Regions still has a strong buy rating according to ValuEngine, has a reasonable P/E but is below its 200-day SMA at $6.64. The weekly chart profile is negative with the 200-week SMA at $6.03. My weekly value level is $5.86 with monthly risky level at $6.91.

SunTrust Banks ( STI) ($26.60 vs. $27.20 on Oct. 31): STI has been downgraded to buy from strong buy according to ValuEngine, has a favorable P/E and is above its 200-day SMA at $24.88. The weekly chart profile is negative with the 200-week SMA at $23.11. My quarterly value is $24.11 with my monthly risky level at $26.94.

US Bancorp ( USB) ($31.76 vs. $33.21 on Oct. 31): USB still has a buy rating according to ValuEngine with a reasonable P/E but is below its 200-day SMA at $32.17. The weekly chart profile is negative with the 200-week SMA at $25.30. My weekly value level is $30.70 with my monthly risky level at $33.74.

Wells Fargo ( WFC) ($32.98 vs. $33.69 on Oct. 31): WFC still has a buy rating according to ValuEngine with a reasonable P/E but is below its 200-day SMA at $33.28. The weekly chart profile is neutral with the 200-week SMA at $28.24. My weekly value level is $30.78 with an annual pivot at $32.70 and semiannual risky level at $33.99.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.