When Warren Buffett announced he was investing $5 billion in Bank of America (BAC) on Aug. 25, the revelation briefly reinvigorated a beaten-down financial sector that's been starved for good news. But after early enthusiasm, most big banks surrendered early gains and finished near session lows -- and they remain in a world of technical hurt.
I've never been a big fan of bottom-fishing, especially in financials that have been smacked mercilessly by institutional selling in recent months. I prefer to focus on stocks with clean balance sheets that have shown consistent growth in recent quarters. This growth, in turn, often results in strong relative price performance.
I'm looking at some names in the sector, but they're not the usual suspects. I have no interest in owning BofA, Goldman Sachs (GS), JPMorgan Chase (JPM) and Wells Fargo (WFC). Too many questions remain about their ability to generate meaningful top-line growth. It's possible, of course, that all three have hit a near-term bottom and that higher prices are just a matter of time. Still, two other stocks in the sector -- in my view -- have a better chance of outperforming.
The first is Chile-based Banco Santander-Chile (SAN). As of Thursday's close, the stock was back above its 10-week moving average, only about 8% from its 52-week high. It's been showing some signs of accumulation lately, as evidenced by several above-average volume price gains. On Thursday, volume expanded again to 246,200 shares -- well above average. The stock outperformed, rising 1.5% to $91.76.
Banco Santander-Chile provides commercial and retail banking services to corporate and individual customers in Chile, which is widely regarded as one of South America's most stable and prosperous nations. Some estimates have Chile's economy growing by as much as 6.6% in 2011.
Banco Santander-Chile has market capitalization of $16.6 billion. Annual earnings growth has increased every year since 2004, an impressive accomplishment. In recent quarters, bottom- and top-line growth has been impressive. In its latest reported quarter, earnings rose 18% year over year to $1.67, while sales grew 41% to $1.28 billion, the second straight quarter of accelerating sales growth. Annual return on equity is solid at 26%. Banco Santander-Chile is also debt-free and yields 2.4%.
I like the look of Banco Santander-Chile's weekly chart. The first thing I like is the support the stock showed during the week of Aug. 12 -- it finished near its high for the week, and weekly volume was well above average. It also hit a low of $74.87 that week, which undercut the low in the prior base of $75.23. At this point, I'll wait and see if a breakout above $96.82 comes to fruition. Recent accumulation in the shares tells me it's not out of the question.
The next idea is Cohen & Steers (CNS). The small-cap investment manager also has top fundamentals and is setting up nicely. It has a market cap of $1.7 billion.
The company provides investment management services to individual and institutional investors. It manages portfolios specializing in U.S. and international real estate securities, large-cap value stocks and preferred securities.
The company's growth in recent years has been a sight to behold. In 2010, it made $0.97 a share, up 49% from 2009. In 2011, full-year profit is expected to come in at $1.49 a share, 54% higher than in 2010. In July, the company reported an 89% rise in quarterly profit of $0.36 a share, and sales jumped 39% to $61.5 million. At 31x trailing earnings and 19x forward earnings, Cohen & Steers sells at a reasonable valuation based on its growth rate.
Cohen & Steers has been consolidating gains for almost six weeks, and it could be on the verge of a breakout if new money continues to come in from the sidelines. Headed into Friday, it was only about 5% from its high. It's another stock showing signs of accumulation in recent weeks. Similar to Banco Santander, CNS also shows a nice support week in heavy volume. From here, I wouldn't mind seeing one last low-volume shakeout before the stock potentially tries for a breakout.