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Financials Finally Come to the Party

David Becker
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www.iforex.com

Stocks have benefited from a rally in financials which started in the latter half of the 4th quarter but have taken on a head of steam that is likely to continue into 2014. As the yield curve in the US continues to steepen, where the short end of the interest rate curve outperforms the long end, financials stocks should outperform, notching up solid earnings during the 4th quarter of 2013.

PNC Financial (NYSE:PNC) should continue to benefit from the steepening of the yield curve as the long end backs up. The short end is tied to Fed Funds which will remain low until unemployment moves well below 6.5% and inflation climbs above 2%. In recent news, PNC agreed to pay the U.S. $35 million to settle claims that minorities were charged more for home loans than similarly qualified white borrowers.

The 52-week range of PNC is $ 57.20 – $77.93, and the stock hit a 52-week high in early December. The quarter over quarter earnings per share was up 10%, while the three year growth rate of earnings up 5%. Sales were up down 5% quarter over quarter and the three-year growth rate of sales was down 1%. The company has a reasonable price to earnings ratio of 11 and profit margins of 25.5%.

Recent insider buying makes the stock look attractive. James Rohr purchased slightly more than 170 thousand shares on December 20, 2013 for a total value of nearly 13 million dollars. He also purchased nearly 31 thousand shared on December 16, 2013 for a total value of slightly more than 2 million dollars.

The technical outlook is positive as the stock climbs to test resistance near the recent highs near $78. Momentum is strong as the MACD (moving average convergence divergence) index generates a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.

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