Pros Can’t Agree On Whether Banks Are a Buy
Financials gained after widely-followed bank analyst Meredith Whitney on Tuesday turned bullish on the sector and upgraded Bank of America, Citigroup and Discover Financial to "buy" from "hold," but it seems there still is some disagreement among traders as to whether bank stocks are worth buying now.
"There's an incredible growth opportunity within the financials, particularly Bank of America, Citigroup, Discover Financial — and there are others," Whitney told "Closing Bell." "I think the underlying support is housing is close to bottom, so that is a great headwind relief for banks ... They've come a long way."
Speaking on CNBC's "Fast Money," trader Karen Finerman of Metropolitan Capital Advisors said there are several reasons to be bullish on Bank of America. An Improving real estate market, Increased consumer spending, a rising interest rate environment and declining litigation costs will all help the Charlotte, N.C.-based bank, she said.
Finerman also noted its stock also trades at a "significant discount" to its book value, which is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. Its stock is relatively cheap given its price-to-earnings ratio, too, judging on where the stock "could go." The P/E ratio, by the way, is a valuation ratio of a company's current share price compared to its per-share earnings.
To Finerman, the only downside to the stock is that it's up 104 percent year-to-date, but she still thinks "there's room to run in Bank of America."
Guy Adami, on the other hand, remains concerned about Bank of America's inventory of delinquent mortgages.
"If they turn into foreclosures, which I think they will, I don't think that augers particularly well for BAC," said Adami, managing director of stockMONSTER.com, adding its European market continues to struggle and at some point, investors will likely demand it raise its "paltry" dividend. "You have to be a little leery that there may be some bogeys out there that we don't talk about enough."
Adami pointed out that BAC has been a particularly volatile stock, too.
"I'm not saying it can't go to $12 or $12.50 at some point," Adami explained. "But it wouldn't surprise me again if we saw a $9.50 or $10 handle at some point again, as well."
When this story was published, Finerman owned Bank of America.