Mad Money

Cramer discovers a bizarre pattern for regional banks that signals more room to run

Cramer discovers a bizarre pattern for regional banks that signals more room to run

Regional banks have run up dramatically since the election, and while the stocks likely have a pending rate hike baked into valuations, Jim Cramer thinks they could still have room to run.

What was even more remarkable to Cramer was that several of the regional bank players have been hit with downgrades, both before and after the election, and they continued to rally.

"Personally, I think there is no better evidence for the strength of the regionals than the fact that they can keep roaring in the face of these downgrades," the "Mad Money" host said.

Cramer took a look at BB&T, Fifth Third Bancorp, KeyCorp and Regions Financial to figure out why analysts bailed on the red-hot group at a time when they are the sexiest group in the market.

A KeyBank sign with a market ticker is seen on the facade of the KeyBank Building in Columbus, Ohio.
Jay Laprete | Bloomberg | Getty Images

BB&T was hit with five separate downgrades from late June to a few weeks before the election. Even after the election, the stock was downgraded twice, first by BNP Capital and then by Morgan Stanley.

Morgan Stanley pointed out that the election results were positive for financials, but then said that BB&T could see less cost savings from its acquisitions of Swett & Crawford and National Penn. It also said increased competition could hurt the company's specialized loan growth. BMO simply cited fewer catalysts to outperform in a new rate environment as the reason for its downgrade.

"All I can say is 'oops'... These guys totally missed eh fact that this market is seeing a wholesale re-rating of the financial sector, and all of the banks were ready to roar in advance of this week's Fed meeting … Turns out this market doesn't care about nitpicking when it comes to the bull market in the financials," Cramer said.

Fifth Third Bank Corp was hit with a slew of downgrades earlier this year, including three after the election from Bernstein, Baird and Compass Point. Baird said that Fifth Third's stock already had most of the upside of the company's new efficiency baked in. In Cramer's view, this was totally missing the point.

"They could be the least efficient bank in America and they would still be poised to make a killing right now," Cramer said.

KeyCorp really took Cramer's breath away. Since the election it has been downgraded six times. The most common reason for the downgrades was valuation. Meanwhile, the stock has rallied 8 percent since the latest downgrade from KBW two weeks ago.

Regions Financial was slammed with three downgrades after the election, courtesy of Piper Jaffray, Jefferies and Susquehanna. Jeffries cited another valuation based downgrade, yet the stock has rallied another 11 percent since that downgrade.

"Again, these valuation calls are making the analysts look like dopes," Cramer said.

So, yes, regional banks have run up dramatically since the election and yes, the stocks likely have a pending rate hike baked into their valuations. Some are even better than others.

But when Cramer sees a group like this rallying even after it is downgraded, he knows the move is for real.

"I think the regional banks can keep roaring simply because there are way too many hedge fund managers who still don't have enough financial exposure now that this once hated group has suddenly become beloved. These are classic Trump stocks, and they have more room to run," Cramer said.

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