This week Moody’s Analytics, a well-respected rating firm, fired a warning shot about regional banks – you know, the very same banks that are up between 20% and 50% since the depths of the “banking crisis.”

(As a Trade of the Day reader, you should’ve made big bucks buying while others were selling – as I recommended you do many times!)

Moody’s is not predicting that banks will fail, but it did take a cautionary tone in a report released on Monday.

I’m paraphrasing here to save space, but here’s what it essentially said about the condition of the banks:

“U.S. banks are in good shape overall; however, some regional banks will experience lower profitability because the margins between what they make on loans and what they pay out in interest are shrinking. This might get worse if we go into a recession. And some banks have exposure to commercial real estate that might go down in value.”

Barron’s responded with this headline:

“Bank Stocks Fall After Moody’s States the Obvious. It’s Time to Buy.”

So, what should you do: buy or sell?

Well, if you are in high-quality banks like JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) or any of the other 20 banks that passed the Fed’s annual stress test this year, then you should stay the course and collect the dividends.

If you are in regional or community banks, make sure you are position sized. You could also move your allocation to the names above…

Or buy shares in Charles Schwab (SCHW), the brokerage firm that is actually a bank but has no exposure to things like commercial real estate.

Schwab aced the Fed’s bank stress test. It also beat earnings, raised forward guidance and is trading 30% below its 52-week highs.

Moody’s is a respected ratings agency, but its report was a little too broad in nature and was intended to get your attention. It did that, but it also revealed some hidden gems!

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