1-Star Stocks Poised to Plunge: East West Bancorp?

By Brian D. Pacampara
November 10, 2009 | Comments (4)

Recs

8

Based on the aggregated intelligence of 140,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, East West Bancorp (Nasdaq: EWBC), which focuses on the Asian-American banking segment in California, has received the dreaded one-star ranking.

With that in mind, let's take a closer look at East West's business and see what CAPS investors are saying about the stock right now.

East West facts

Headquarters (Founded)

Pasadena, Calif. (1998)

Market Cap

$1.23 billion

Industry

Regional banks

Trailing-12-Month Revenue

($123.0 million)

Management

Chairman/CEO Dominic Ng (since 1998)
CFO Thomas Tolda (since 2008)

Trailing-12-Month Return on Equity

(12.6%)

4-Month Return

132%

Competitors

UCBH Holdings (Nasdaq: UCBH)
Wells Fargo (NYSE: WFC)
Bank of America (NYSE: BAC)

CAPS Members Bearish on EWBC Also Bearish on

Fifth Third Bancorp (Nasdaq: FITB)
General Electric (NYSE: GE)

CAPS Members Bullish on EWBC Also Bullish on

Citigroup (NYSE: C)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 44% of the 66 All-Star members who have rated East West believe the stock will underperform the S&P 500 going forward. These bears include floridabuilder2 and TSIF, both of whom are ranked in the top 2% of our community.

Just yesterday, floridabuilder2 touched on the stock's seemingly unsustainable 55% surge on Monday: "[T]his pop provides a short term trade opportunity to the downside, but proves out my point on banks and the [government] picking winners and losers."

In a more detailed pitch, TSIF also warned Fools not to get too excited over yesterday's buyout. Here's an excerpt:

East West Bancorp acquired UCB, a competitor, backed by a sweet deal from the FDIC. This is clearly good news for several reasons, but not worth the 50% bump it's enjoying. Part of the reason it's good news is that it does point to some confidence that the FDIC may have in [East West], but I think this is overdone. ...

My pessimism is generated around the issue that [East West] was already suffering from its own loan portfolio in California which does not get any special treatment under this deal. It still has its own "mess" to deal with and I believe this jobless recovery will continue to depress banks with extensive loan portfolios. … I can't get 50% upside excited on a bank under these economic conditions.

What do you think about East West, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. The CAPS community is waiting to hear your opinions. CAPS is 100% free, so get started!  

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy always gets a perfect score.

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 November 10, 2009, at 11:41 AM, Teacherman1 wrote:

    The quick and drastic run up might be cause for a short term bear position, but I for one will look to buy when it eases back down some.

    They basically doubled in size, and the help the FDIC is giving them, will allow them to "feed" off of UCB's deposits and assets in the longer run.

    Of course, maybe the FDIC is just putting them together so they can close them out at the same time. A little far fetched, but in the current environment, anything is possible.

    JMO and worth exactly what I am charging for it.

    .

  • Report this Comment On November 10, 2009, at 12:09 PM, pondee619 wrote:

    OK Brian, you refuse to keep track of your "Poised to" stocks, I will. Since these stocks are "Poised to" do something, I'm listing your current stocks in my watch list. Let's see how they do against the market. I still can't understand why you refuse to keep some accountablity to your stories by listing your subjects in CAPS. Maybe we'll see through my watch list efforts.

    P.S. yesturday was a good day for "poised to" stocks to do what they were supposed to do.

  • Report this Comment On November 10, 2009, at 1:08 PM, SuperContrarian wrote:

    Bottom line, I am UCBH stock holder and FDIC stole this deal. Mensheng Bank had better financing to save UCB. The deal wih East West puts two weaklings together to be bigger fall for the US Tax Payer. I beleive the deal East West with UCB was politically motivated and NOT market rational or finacially prudent. In the lon run, the FDIC eliminated competition and free market choice for the US consumer. at the expense of politics.

  • Report this Comment On November 10, 2009, at 2:35 PM, syazic wrote:

    It was a BS prediction: the stox went up $4 yesterday with " free " handing over of UCBH to them.. It is $13 stox now!

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