U.S. bank stocks could rise as much as 25 to 30 percent next year as their litigation costs finally begin to ease, Gerard Cassidy, a banking analyst at RBC Capital Markets, told CNBC on Tuesday.
"There's meaningful upside left for selected names of the top 20 banks," Cassidy said.
He's calling for the gains despite the strong year-to-date recovery in bank stocks, with Bank of America climbing more than 35 percent and Goldman Sachs tacking on more than 33 percent, outperforming the S&P 500's around 26 percent rise over the period.
Banks' valuations haven't really recovered yet, he said.
"When you take a look at where some of our largest banks are trading, banks such as Bank of America [and] Citigroup, they're trading at big discounts to book value and when they return to normal profitability, they should be trading at premiums to book value," he added. Bank of America is trading at a price-to-book ratio of around 0.72 times.
Cassidy expects banks' return to normality to begin soon.
(Read more: Moody's cuts ratings of three big US banks)
"After a multi-year deleveraging by the American consumer as well as businesses, we're going to see an acceleration of loan growth in 2014 and a steepening of the yield curve because of quantitative easing backing off," Cassidy said.
His top picks are Bank of America, Citigroup and JPMorgan.
"The capital market players such as Goldman Sachs and Morgan Stanley are certainly a way to play the strengthening of the U.S. economy. But we think you can also maybe get a better lift as an investor in these bigger commercial banks," he said.