This is a big week for bank stocks. In-the-know investors are piling in. Their moves are likely to pay off. Our trading strategy has long focused on volume. By tracking who is buying what and how much of it, we get a nearly perfect view of not just what's happening in the market now... but also what's about to happen. Big events are almost always preceded by large spikes in buying pressure. Scanning the market, that's exactly what we're seeing in the banking sector right now. A Stress-Free TradeIt makes sense. On June 24, the Federal Reserve will announce the results of its latest stress test of the nation's banks. This test has been a big deal ever since things got a bit too warm in 2008. Most folks believe the majority of banks will have no problem passing the Fed's test. Despite big demand and a glut of liquidity, banks have been tight with their lending. It's created an industry with a conservative balance sheet that will surely make Fed bean counters give their nod. But here's the thing... Banks that pass the test won't just get a stamp of approval. They'll be able to resume making share buybacks and dividend payouts just as they did before the pandemic brought on tough restrictions. It means a lot of money - hundreds of billions of dollars - is about to be returned to shareholders. Easy MoneyIt's the buybacks that get our attention. We like their moneymaking potential so much that we devoted an outsized chunk of the Manward Letter portfolio to the notion. And it's paid off. Buybacks are surging at a historic pace. If you're unfamiliar with the concept, it's quite simple. When companies are flush with cash, they have a few things they can do with it. They can... - Invest it in the business
- Pay it out in the form of dividends
- Use it to buy back shares of their own stock.
For banks, investing in the business means either expanding their reach or making more loans. Both are risky in this sort of environment. Paying a dividend is a fine choice, but it leads to hefty taxes. Not only are the corporate profits taxed, but the dividend payouts are as well. Buybacks are a much more efficient way of boosting shareholder wealth. By removing shares of the stock from the market, each remaining slice of the company increases in value. Best of all, investors pay taxes only when they sell their shares. It's an idea bank investors are likely to become quite familiar with over the next few weeks and months. After the Fed makes its announcement on Thursday, we expect a frenzy of moves from the nation's banking sector. Proof of ConceptIt will be a boon for shareholders. Buybacks have historically made up 70% of the industry's payouts to shareholders. Big banks are already allowed to issue buybacks. The Fed gave them limited access to do so late last year. JPMorgan Chase (JPM), for example, is in the midst of a $30 billion buyback plan. It's paid off. The bank's share price has climbed at nearly double the pace of the broad market. And with Jamie Dimon saying last week that his company is sitting on $500 billion in cash with no place to go... you can bet his buyback plans are about to expand. In all, banks are sitting on cash holdings worth a whopping $1.7 trillion - twice what they held before the pandemic. Indeed... it's clear why we're seeing a big spike in buying pressure within the sector. Piles of cash are about to be handed out to investors. In-the-know investors are jumping in to take advantage of it. We reckon you should too. Be well, Andy Want more content like this? | | | |
Andy Snyder | FounderAndy Snyder is the founder of Manward Press, the nation's premier source of unfiltered, unorthodox views on money and what it means for a free society. An American author, investor and serial entrepreneur, Andy cut his teeth at an esteemed financial firm with nearly $100 billion in assets under management. He's been a keynote speaker and panelist at events all over the world, from four-star ballrooms to Senate hearing rooms. | | |
| 
No comments:
Post a Comment
Keep a civil tongue.