‘ATH Breakout’ Makes Federal Bank an Eye Candy for Long-Term Holders!

Today’s session is a perfect one to hunt for stocks that have delivered a breakout on the charts. Stocks that are outperforming this rallying market would be having higher relative strength and on top of that, if they deliver a breakout, they could become a perfect candidate for the foreseeable future. 

Generally, all-time high breakouts are one of the most important signals for an impending bull run. These stocks become a good candidates for buy-and-hold investors. One stock that has surged past an all-time high is Federal Bank (NS: FED ). It is a midcap bank with a market capitalization of INR 26,352 crores and operates via four segments  Treasury, Corporate or Wholesale Banking, Retail Banking, and other banking operations. 

Talking about the financials, the bank recorded a record high revenue of INR 16,502.46 in FY22 which also led to the highest-ever profit of INR 1,969.78 crores. The bank has been growing its net income at a 5-year CAGR of 17.84% which gives it a huge growth potential considering its small earnings base. 

The bank also trades at a P/E ratio of 13.38, compared to the sector’s average of 20.36. Peers such as AU Small Finance Bank (NS: AUFI ) and South India Bank are trading at a P/E of 34.27 and 45.29, respectively. Federal Bank is also trading at a dividend yield of 1.44%.

Coming to the main attraction, the stock has delivered a massive breakout on the monthly chart, breaking above its previous lifetime high of INR 127.75, marked in October 2017. For such a long time the stock had only been up and down, dipping to a low of around INR 35. The stock tanked to this low which was primarily due to the Covid-19 pandemic and recovered to breach its lifetime high. In September 2022, the stock breached this high but the monthly closing was way lower than that, therefore I am considering today’s move to be a much more reliable breakout. 

Today, the stock finally broke above this high again and September 2022 high as well, and interestingly it is all set to give the highest weekly closing ever. Investors might think that the stock has already moved from some ~35 levels in March 2020 to the CMP of INR 131 so the rally has been missed. But, that is the case when investors are trying to play short moves. But now as a new ATH has been printed on the screen, the stock is expected to catch a one-way bull trend. 

On the upside, Federal Bank could show a rate of around INR 170. This might seem absurd, but that’s not a target for a couple of months. As It took years to print a new high, the target would also likely take their own sweet time. It is not a momentum play or a swing trade or something of the sort, the stock is worth a look for those investors who are bullish on the banking space and are looking for a midcap bank for their portfolio, not giants such as ICICI Bank (NS: ICBK ) of HDFC Bank (NS: HDBK ) where the growth potential is difficult considering their gigantic size.