Publish enough opinions about the Wall Street machinery and it’s inevitable that you’ll get some things wrong. My worst idea for 2023 centers on casting doubts about regional financial powerhouse Bank of Hawaii (BOH). At the time, the combination of anxieties over the consumer economy along with sector-related jitters convinced me to be bearish on BOH stock. However, circumstances have obviously proven me wrong.
Even with the benefit of hindsight, I can still appreciate why I was hesitant about Bank of Hawaii. While the underlying state represents an excellent place to vacation, it’s not exactly a business juggernaut. Basically, it’s excessively dependent on tourism. Well, when you factor in elements such as stubbornly high inflation and rising borrowing costs, consumer sentiment for unnecessary discretionary expenditures will presumably decline.
And then you have the issue of the aftershocks tied to the regional banking crisis. As the AP mentioned following the worst of the fallout, the elements leading up to the catastrophic implosion have not all been addressed. At the time, the consensus wasn’t about whether a recovery would take place. Instead, it was about how bad circumstances could get before they improved.
Outside of owning a crystal ball, if I had to relive the moment (without knowing anything of what transpired), I probably would have issued a bearish outlook on BOH stock at least nine times out of 10. Looking back at the situation, the decision wasn’t merely influenced on underlying data points. There was also a genuine fear that we had upset the delicate financial ecosystem.
To be quite honest, I still have reservations about BOH stock. Nevertheless, with the Federal Reserve hinting at possible rate cuts next year, Bank of Hawaii shares have blossomed. In the trailing month, they gained more than 29%. Even better for the optimists, a combination of contrarian metrics suggest BOH can move higher still.
BOH Stock to Swing Northward? Are You Serious?
Generally speaking, bank stocks don’t gain over 29% of equity value in the span of 30 (calendar) days. So, it begs the question: isn’t it time to give up on BOH stock and take profits off the table?
By all means, if you happened to go contrarian earlier in Bank of Hawaii, now would be an ideal time to secure some profits. Just like in baseball, you don’t want to get too greedy in the market. If you have a chance to score a run – even if it’s via a sacrifice fly – you should take it. That said, BOH stock could be a speculative name to watch on multiple levels.
First, the options market presents an enticing narrative. While BOH might go in and out of relevance depending on the day, it has seen some intriguing big block activity based on Fintel’s options flow screener. For example, on Dec. 5, a major entity (or entities) sold 1,000 contracts of the Jan 19 ’24 50.00 Call. At face value, this trade implies that BOH stock won’t materially rise above the $50 strike price.
Now, to maximize the premium received, the trader underwrote the above contract when the spot price of BOH was $62.96. Yes, that’s above the strike price of $50. However, because of the $1.33 million premium received, BOH just needs to head closer to the strike for the bearish trade to be profitable.
Unfortunately, that’s not what’s happening. Last Friday, shares closed at $72.67. And if we are to take the Barchart Technical Opinion indicator seriously – which broadcasts a 100% strong buy assessment – then the bears are in major trouble. Indeed, anyone selling calls should at least consider the prudence of covering some of the exposure before things get out of hand.
Second, BOH stock incurs high short interest, specifically 20.58% of its float. Ordinarily, such a metric indicates that traders believe the underlying enterprise is available; hence the short bet. It’s not natively a positive sign. Still, with traders so intrigued by contrarian activities, a short squeeze could materialize.
If it does, that would put a hurting on bearish options traders. And should they decide to cover, that’s going to put pressure on the folks who are directly shorting BOH stock. Put another way, we could see a feedback loop that benefits the bulls.
Still Not Convinced for the Long Haul
While Bank of Hawaii may offer a tempting narrative for swing traders, long-term investors may want to look elsewhere for opportunities. Primarily, the economy may still be fragile. If it were truly and holistically robust, we probably wouldn’t see companies continue to lay off their workers.
Also, the latest tourism data from Hawaii doesn’t offer the most encouraging read. According to the state’s Department of Business, Economic Development & Tourism, a total of 734,582 visitors arrived in October 2023. That was down 3.2% from one year ago. To be fair, compared to pre-pandemic 2019, the latest tally represents a 92.3% recovery in total visitor arrivals.
Still, with the losses that the state suffered in 2020, Hawaii needs all the tourism business it can get. I don’t think these numbers are quite enough. So, for that reason, I remain skeptical about the longer-term prospects of BOH stock. You just don’t want to bet against it at this juncture.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
