With Bitcoin Down Big, try this high-flying banking action

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It has been a difficult few months for crypto investors. The most disruptive currency, Bitcoin (CRYPTO: BTC), is down more than 40% from its highs at the start of the year. Meanwhile, the ultimate legacy financial industry, the bank, has been in tears. Western Alliance Bancorporation (NYSE: WAL) is a high profile example. The company has benefited from rising demand for homes, triggered by record interest rates, which are also pushing up average house prices, meaning buyers have to take out larger mortgages. Analysts expect Western Alliance to generate record profits in 2021.

Fiat versus cryptocurrency is arguably the most controversial topic in finance today. But proactive investors could benefit from exposure to both. Crypto investors looking to diversify might find Western Alliance a great buy.

Image source: Getty Images

The great debate

Although it is over a decade old, Bitcoin is still in its infancy compared to the conventional monetary system, and it is currently suffering from a phase of global regulation, which some experts say is contributing to it. legitimize.

While it is possible that increased government scrutiny will attract sophisticated investors – who like to have recourse if things go wrong – some countries are taking extreme measures. China recently announced a ban on Bitcoin in various capacities, which included shutting down more than 90% of its mining operations. He has also ordered financial institutions and payment providers to stop processing Bitcoin transactions, which has an impact on cryptocurrency trading and its use in everyday purchases.

On the opposite end of the spectrum, the nation of El Salvador has adopted Bitcoin as legal tender, although the World Bank has rejected its request for assistance with the transition. Additionally, the groundbreaking movement has done little to stem the cryptocurrency’s steep losses that began in April.

One thing is certain: cryptocurrencies in general face more uncertainty than ever before, and having recently traded at record valuations in many cases, they have arguably never carried more risk. This is where diversification tends to come in handy – after all, it’s a strategy adopted by the world’s biggest investors. By adding a quality bank like Western Alliance to your portfolio, you could benefit from supercharged growth and the security of a proven business model with products and services necessary for everyday life.

A booming banking action

Western Alliance Bancorporation is up more than 300% from its March 2020 low. And it is part of a cohort of the banking industry – regional banks – that has posted an incredibly strong performance this year.

The growth of the company has been led by the consumer segment, which takes out loans for residential real estate. On April 7, Western Alliance completed the acquisition of Amerihome for $ 1.22 billion, which acquires mortgages through partnerships with loan originators (and makes some loans itself). At the time of the acquisition, it was the third-largest buyer in the United States, purchasing $ 65 billion worth of mortgages in 2020. For a bank trying to expand its presence in the mortgage industry, this deal is a great way to boost some growth.

Segment

Q1 2020

Q1 2021

Difference

Growth

Commercial loans

$ 18.1 billion

$ 20.7 billion

$ 2.6 billion

14.3%

Consumer loans

$ 5.0 billion

$ 8.0 billion

$ 3.0 billion

60%

Data source: Western Alliance Bancorporation.

According to Yahoo! Finance, 12 analysts have an average profit estimate for the year 2021 of $ 8.09 for the company. At Monday’s closing price of $ 92.28, the stock is trading at 11.4 times that earnings projection. In comparison, the SPDR S&P Regional Banking ETF is trading around 12.7 times expected earnings, so Western Alliance is trading at a slight discount (assuming it meets expectations this year). It is expected to earn even more in 2022, at $ 9.05 per share, so the stock’s rise could extend into the new year.

Buying a stock like this could help alleviate some of the uncertainty associated with crypto wallets. While it is very difficult to determine where Bitcoin will trade in 2022 (or near term), we can assign more useful valuations to banks and for-profit companies, based on decades of market history.

Why not have both?

Western Alliance shares are down about 15% from their recent highs, and given earnings estimates, there’s a pretty good case to buy them here. This could be an opportunity to own a high quality element of the traditional monetary system which is expected to generate growth in the coming year.

With Bitcoin down around 43% from its mid-April high, crypto bulls will likely be tempted to buy the downside – and it has already rebounded nearly 15% from its week lows. last. However, investors should be aware that this is still a speculative investment. There are few ways to really assess it, and it is almost impossible to make precise projections about its future, especially with looming externalities like regulation.

If you are a crypto bull looking for a little more certainty in tough times, Western Alliance might be the alternative for you. It has outperformed Bitcoin since the start of the year, and there is every chance that it will continue.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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