HAFC, FIG, DRL: Contagion of a Different Sort

The sanity finally prevailed last week in the US markets and financial stocks such as Hanmi Financial Corp (NASDAQ: HAFC), Fortress Investment Group LLC (NYSE: FIG), and Doral Financial Corp (NYSE: DRL) were major beneficiaries. Earlier, the relatively better fundamentals of the US economy underlined by the robust economic indicators were completely discounted by the markets in the face of European crisis. However, as usually happens in the markets, the pessimism finally gave way to a more reasonable outlook.

As The Economist puts it in its contagion write up, the US banks are in a very different situation (read much better) than their European counterparts and argues that there is no contagion effect whatsoever among the financial players. “America’s biggest banks now boast liquid assets of three to 11 times their short-term borrowings” according to the data compiled by Moody’s. Although it is not an overnight development, somehow market decided to overlook the signs that were already there. Now with the encouraging jobs data out in public domain and visible signs of progress in Europe, a December rally is very much plausible.

Despite a healthy rebound in financial stocks last week, Hanmi Financial Corp (NASDAQ: HAFC), Fortress Investment Group LLC (NYSE: FIG) and Doral Financial Corp (NYSE: DRL) have not participated in the rally to the same extent as their high beta counterparts have.

Take Hanmi Financial Corp (NASDAQ: HAFC) for example. The stock gained nearly 9 per cent in the previous week, but it is still less than the 16 per cent jump enjoyed by First Commonwealth Financial (NYSE: FCF). Its current price of $0.89 is pretty much on the lower side of the 52 week range of $0.78 - $1.74.

Fortress Investment Group LLC (NYSE: FIG) touched the $3.5 mark last week, jumping 15 per cent through the five days. However, this growth came after losing nearly the same in the first three weeks of November making it essentially a flat month for FIG. December looks better though for a yearend rally.  

New York and Puerto Rico based regional bank Doral Financial Corp (NYSE: DRL) gained 5 per cent in the week. Despite last week’s increase, the stock is trading dangerously close to its 52 week low of $0.72. It is attractive valuations wise too with a book value of $6.5, cash per share of $3.4 and debt-equity ratio of 1.

In all these financial stocks, the growth in stock price has come with a considerable time lag and thus, the rally should last longer in these stocks. Hopefully, financial stocks continue to gain from visible changes in the US economy.