With interest rates on the rise, many investors are clamoring to gain exposure to North American lenders, for good reason. Rising interest rates mean rising yield spreads, providing banks with a boost at a time when many other sectors are expected to lag due to fixed income options taking away much of the luster of dividend-focused equities in what was a low interest rate environment for many years.
That being said, a few opportunities still exist today to take advantage of this favorable environment for the financial services sector without paying a significant premium.
In the U.S. market, Columbia Banking System (NASDAQ:COLB) is one of the regional players which has participated in the recent rally but has sold off in recent months, down nearly 20% over the past year, for a number of reasons.
Most notably, margin contraction has been cited by many as one of the core drivers of this company's share price, as investors price in what is expected to be somewhat slower growth in the near to medium term.
As with many companies in this space, recent tailwinds including the Trump Administration tax cuts, deregulation, and government spending initiatives are largely baked into the stock prices of companies such as Columbia Banking; many investors may now be worried that trade tensions and other macroeconomic issues may prevail, hurting everyone from large national lenders to regional firms like Columbia as well.
While I do believe these headwinds are likely to manifest themselves on the horizon, I also believe the market may have swung back too far in this case, and investors may have a nice entry point to pick up shares of Columbia Banking at a reasonable valuation.
Invest wisely, my friends.
