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Bet on big banks: 5-star fund manager Bill Nygren

Tuesday, 14 Jan 2014 | 4:23 PM ET
Favorite bank right now is BAC: Nygren
Monday, 21 Oct 2013 | 12:35 PM ET
Bill Nygren of Oakmark explains that he favors Bank of America over JPMorgan because JPM "is not quite as cheap as BAC."

Quarterly earnings from two major banks are painting a messy picture, but a combination of cheap valuations and solid management makes this sector the best place for investors, according to five-star money manager Bill Nygren.

Lingering legal issues and rising interest rates led to a mixed bag of reports for both JPMorgan and Wells Fargo—which kicked off the earnings season for big banks on Tuesday.

JPMorgan said fourth-quarter profit fell 7.3 percent due to lingering legal issues tied to its involvement with convicted Ponzi-schemer, Bernard Madoff.

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Wells Fargo, on the other hand, beat estimates on the top and bottom lines but traded lower in the afternoon hours on concerns about a steep drop in mortgage loan growth before ending up slightly at $45.58.

"We own the financials because they are the cheapest stocks with the highest quality management," Nygren told CNBC's "Halftime Report."

A former Morningstar Fund Manager of the Year, Nygren said that financials have held the heaviest weighting in his $13 billion Oakmark Fund for years.

It's a move that is paying off, he said, with his fund outperforming the S&P 500 over the last three-, five- and 10-year periods.

For this investor, it all boils down to the price he's paying for stocks.

"We don't wake up in the morning thinking we want to put money to work in boring industries," he said. "But when you see valuations that are less than book value, less than 10 times earnings, to us that looks really, really attractive compared to a market at about 16 times earnings."

Nygren's current top pick and largest holding is Bank of America, a company that he thinks many still consider the poster child for the housing crisis. "We believe CEO Brian Moynihan was dealt a really bad hand when he took over that company."

Nygren went on to say the company's balance sheet is the best relative to peers and that investors could expect increased return of capital in the form of share buybacks or repurchases.

Another area this bargain-hunter is nibbling at is technology, passing on the more buzzed-about names in social media and instead choosing older, more well-established firms, telling CNBC, "We own the old stuff—Oracle, Microsoft and Intel."

By CNBC's Katie Young. Follow her on Twitter @KatieCNBC

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