This U.S. Sector Is Dirt-Cheap Compared With the Entire Market

A "boring" U.S. sector has been dominating high-flying tech stocks.

Heck, it has dramatically outperformed the Nasdaq, semiconductors, and the S&P 500 over the last nine months.

Still, despite its incredible performance, it's grossly undervalued compared with the broader market. It trades for a 53% discount to the S&P 500 right now.

That's setting up an incredible opportunity. It means that this boring sector – which is already outperforming – can keep moving higher from here. And there's an easy way for you to take advantage of it.

Let me explain...

There are certain corners of the market that few investors ever think about. They aren't sexy, even when they're booming.

Today's opportunity is just that... boring, despite a major move in recent months. I'm talking about U.S. regional banking stocks.

Since late September 2020, this sector is up 103%. Meanwhile, semiconductors are up 54%... And the Nasdaq and the S&P 500 are up roughly 35% each.

After such a rally, you might expect this sector to be darn expensive. But that's not the case today. Instead, these stocks are cheap.

We can see this by looking at the price-to-earnings (P/E) ratio for both regional banking stocks and the S&P 500. A relatively high P/E ratio means a market is expensive. And a low P/E ratio can signal an undervalued opportunity.

Today, the regional banking sector trades at a 53% discount to the broader market based on this measure. Take a look...

This kind of deep value isn't always available. Historically, the discount has been around 20%, with some minor fluctuation. That's what we saw from the end of 2011 into 2018.

Then, the pandemic widened the gap... Regional banking stocks hit a 60% discount to the S&P 500 in March 2020. And even though this corner of the market is up 103%, it still trades for a 53% discount.

This ratio still shows how dirt-cheap regional banking is right now. This sector would have to double in price once again to be as expensive as the S&P 500.

That's entirely possible based on what we've seen over the past decade. And it means that the major rally we've seen so far could only be getting started.

The simplest way to take advantage of it is the SPDR S&P Regional Banking Fund (KRE). It holds a basket of these smaller banks. And that means it offers a simple and diversified way to make this bet.

I realize that this isn't a sexy idea. But the best opportunities are often boring.

U.S. regional banking stocks have been on an absolute tear. And based on today's value, they still have plenty of upside potential. Shares of KRE offer a simple way to profit from it.

Good investing,

Chris Igou

Further Reading

Buying hated stocks works – no matter where in the world they're located. Right now, investors are fleeing one market outside the U.S. And history shows that it could be a strong buy signal in the near future... Read more here: This Stock Market's Exodus Highlights a Rare Buying Opportunity.

"Big gains tend to squash investor fears and send folks chasing after more profits," Chris says. But that isn't happening for this specific group of stocks. And one metric is telling us that could be a major opportunity today... Learn more here: Investor Fear Will Likely Send This Market Even Higher.

Market Notes
THIS 'LOYALTY' MEGASTORE KNOWS HOW TO KEEP ITS SHOPPERS HAPPY

Today, we’re checking in on a company that keeps customers coming back for more…

Longtime readers know that brick-and-mortar retailers continue to face online competition. Some of these stores have adapted their business models in order to survive… while others have the luxury of loyal customers to help keep business booming. Today’s company is an example of the latter…

Costco Wholesale (COST) is a $175 billion megastore chain. It sells groceries, household essentials, and a host of other items. Costco also sells its products in bulk, with discounted rates for its paying members… ensuring that members get the most bang for their buck. With shoppers paying at least $60 for annual memberships, this deal motivates folks to come back on a regular basis… In its most recent quarter, Costco’s sales increased to $45.3 billion, up from $37.3 billion in the same period last year.

As you can see, COST shares are up more than 40% since bottoming with the market last March. And the stock recently hit an all-time high. As long as people are still looking for bargains, this “member perks” store should continue to thrive…