Before diving into bank stocks, consider possible horrors

Nevertheless, patient — and brave — investors might want to start looking at selected bank stocks. If the Fed continues to lower interest rates, banks' interest-rate margins could improve. And if lower rates stimulate the economy, loan demand could rise, too.

Wading in at this point, though, demands a degree of prudence. One way to add some safety is size. Big banks, such as Bank of America, are more likely to weather a credit storm — and they're likely to write off bad loans quickly and move on to other ventures.

Some banks enjoy an advantageous niche. Abbott likes United Commercial Bank Holdings ucbh, a San Francisco-based bank that also has operations in China. In fact, China Minsheng Bank, China's eighth-largest bank, has bought a stake in UCBH. (U.S. and Chinese regulators still have to approve the deal.)

Another idea is to see what the bank's insiders are doing. The small regional banks in the chart are experiencing significant buying by directors and officers. Though insiders could have many reasons to sell stock (a car, college education, that starter castle), they generally buy a stock for one reason: They think it will rise.

These stocks also pay dividends of more than 2%. So you get paid a bit to wait for the situation to turn around, or for the banks to be gobbled up. Abbott notes that the market for banks resembles the market for houses: plenty of sellers, not many buyers.

These are not stocks for the faint of heart. If you want a greater degree of safety, consider a fund that invests in regional bank stocks, such as the iShares Dow Jones U.S. Regional Banks exchange traded fund, which trades under the ticker IAT. In any case, keep your investment in the banking area modest: We don't want anyone's portfolio gobbled up.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays. Click here for an index of Investing columns. His e-mail is

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