It is a fairly recent agglomeration, having been put together in the 1990s out of several regional banks in the West and Midwest.
In some ways, USB still looks something like a regional bank that has burst its boundaries and moved beyond its origins. I read that as meaning there will be more energy and attraction to growth for USB than with its bigger, more national cousins, such as Bank of America or Wells Fargo.
U.S. Bancorp had one of the most bullish charts out of 32 stocks added today to the Zacks top-buy list. There were three other stocks in the final four, some with better charts, but their options inventories were marred by wide bid/ask spreads and poor selection.
USB's most recent leg up began Oct. 4, 2011 at $22.26. It hasn't been a straight run. The chart shows four corrections, with the last one still in effect.
The final leg within the leg (the toe?) began March 7 at $28.35 and carried the price up to $32.23 on March 26.
From a chart perspective, USB's virtues as a buy depends upon what sort of correction it is in. A downward move suggests the prudent trader will wait for a bounce. A sideways correction allow more leeway for entry now.
By my count this is the 14th day of the current correction, and it looks to me like a sidewinder. For 10 of those days, the intra-day moves have been confined between $31 and $32. Breakouts have been swiftly followed by retracements.
I'm a fan of breakouts. If I can find a good breakout to play, I'll generally take it with a smile. In the case of USB, the upper extremes of the present correction are $32.23 and $31.89. I would consider playing on speculation if the price breaks above $31.89 on higher volume, and would do so with even greater confidence on a break above $32.23.
The correction period included the stock going ex-dividend on a quarterly payout worth 19.5 cents, which has a depressing effect on the price.
A more aggressive way of playing the chart would be open a short vertical options spread (bull put spread), which gains value with the passage of time. That means I have a profitable trade if the price continues sideways and if it rises. Only a downtrending correction is loss-making under that sort of position.
U.S. Bancorp's return on equity is 16%, and debt is at the high level common to banking, amounting to 184% of equity.
Institutions own 69% of shares -- not a particularly high level -- but the price has been bid up to where it takes $3.20 in stock to control a dollar in sales, making USB a fairly expensive stock.
USB is a highly liquid stock, with average volume of 11.1 million shares. There is a good selection of options, although open interest trails off quickly as the strike moves away from the at-the-money level.
U.S. Bancorp next publishes earnings on May 17. The stock goes ex-dividend sometime in June for a quarterly payout yielding 2.48% annualized.
Implied volatility is at historic lows, at 26%. Options are pricing in a 68.2% chance that the price will close between $29.05 and $33.79.
Decision for my account: A short vertical spread means that I'm selling volatility. Implied volatility for USB is extremely low. A short position would amount to selling low and buying high if volatility should rise. So I'm rejecting the short vertical spread position. I'll consider a long position upon breakout above $32.
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.