Make Money as These Banks Recover and Grow

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some bank stocks to your portfolio, the SPDR S&P Bank ETF  (NYSE: KBE  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a low 0.35 %. It also recently yielded about 1.9%.

Not surprisingly, given the big financial crisis of a few years ago, the ETF underperformed  the world market over the past three and five years. (It's ahead of it over the past year, though.) As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why banks?
If you expect the financial sector to do well over time as it recovers from the meltdown of several years ago, you might want to consider financial stocks for your portfolio. Remember, for example, how good banks are at levying fees and generating income, no matter what regulations are thrown at them.

More than a handful of banks  performed strongly over the past year. Huntington Bancshares (Nasdaq: HBAN  ) , for example, jumped 19%. It has been aggressively reducing its loan-loss provisions while its business has been growing, thanks to talented management. Its 2.5% dividend yield might not be tantalizing, but it was quadrupled  last year, and the company does sport a lot of room to grow -- organically and via acquisitions.

New York Community Bancorp (NYSE: NYCB  ) , up 16%, has an appealing 7.7% dividend yield and a seemingly low valuation. The company isn't expected  to grow very rapidly, but it does seem to offer a sizable upside. One worry, though, is that it gets a big chunk of its net interest from refinancing-related prepayment penalties, which will likely taper off. Bears don't like its high cost of funds relative to peers, but that might be addressed by a large acquisition. In the meantime, it's been buying assets and liabilities from failed banks.

KeyCorp (NYSE: KEY  ) gained 13%, but has seen its business loans surge, while its overall loan portfolio has been swelling -- in part due to its acquisition of 37 banks from HSBC. Bears worry about shrinking revenue , though, and while its valuation may seem attractive, the company hasn't been growing briskly and doesn't get high marks for efficiency.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. First Niagara Financial (Nasdaq: FNFG  ) shed about 3%, and yields 4%. It has been growing well, recently buying many branches from HSBC and inspiring some insiders to buy lots of shares in the past months. The well capitalized regional bank is busy expanding in the Northeast, and fueling that with new share issuances and a dividend reduction. (Its 4% yield is after the reduction.) This positions it for future growth, based on its bigger branch base.

The big picture
Demand for banking services isn't going away anytime soon. A well-chosen ETFcan grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 29, 2012, at 2:18 PM, twitbustr wrote:

    All IMHO. Yet another pump piece on banks and more specifically, on HBAN. The sheer amount of pumping as measured by the plethora of fluff pieces in just the last thirty days is unbelievable. (Put in HBAN in the yahoo search bar for news and you will be overcome) Where were these so called 'writers' for the last two and a half years? Nothing has changed with regard to HBAN's prospects for growth; absolutely nothing, yet like an orchestrated group of lemmings, 'writers' from what seems every online boiler room all show up at the same time, preaching the same message. It is painfully obvious that when hedge funds want a specific outcome to happen to any given stock or sector, they 'employ' these shill, er, 'writers' en mass to enable the desired outcome through sheer volume of favorable (in this instance) piece writing. Personally, I believe that the economy will tank in '13. How can it not with all of the events unfolding both dometically and internationally? Motive here? So the hedgies can file out of the banking stocks in an orderly fashion and lock in their '12 profits while retail investors 'buy' to keep the price up while the 'exit' is happening. Motley Fool and it's own bevy of pump 'writers' should be ashamed of themselves as it is not the org it was promised to be when first envisioned by it's two founders...

  • Report this Comment On December 29, 2012, at 2:21 PM, twitbustr wrote:

    All IMHO. Yet another pump piece on banks and more specifically, on HBAN. The sheer amount of pumping as measured by the plethora of fluff pieces in just the last thirty days is unbelievable. (Put in HBAN in the yahoo search bar for news and you will be overcome) Where were these so called 'writers' for the last two and a half years? Nothing has changed with regard to HBAN's prospects for growth; absolutely nothing, yet like an orchestrated group of lemmings, 'writers' from what seems every online boiler room all show up at the same time, preaching the same message. It is painfully obvious that when hedge funds want a specific outcome to happen to any given stock or sector, they 'employ' these shill, er, 'writers' en mass to enable the desired outcome through sheer volume of favorable (in this instance) piece writing. Personally, I believe that the economy will tank in '13. How can it not with all of the events unfolding both dometically and internationally? Motive here? So the hedgies can file out of the banking stocks in an orderly fashion and lock in their '12 profits while retail investors 'buy' to keep the price up while the 'exit' is happening. Motley Fool and it's own bevy of pump 'writers' should be ashamed of themselves as it is not the org it was promised to be when first envisioned by it's two founders...

  • Report this Comment On December 31, 2012, at 4:52 PM, TheRealRacc wrote:

    Hey Twitbuster, how many article did you paste the same comment on? Sorry you lost all your money. Actually, no I'm not.

  • Report this Comment On December 31, 2012, at 6:49 PM, buffalonate wrote:

    twitbuster, the last time I checked u.s. gdp growth was actually increasing so where is this doomsday you speak of?

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