“I’d probably highlight Morgan Stanley as the one that has some of the best positioning, but is trading at a discount to it’s closest peer, Goldman Sachs,” Harte said.
He said the stocks aren’t bargains, but aren’t expensive, either.
“The way you typically value a broker is a price-to-book multiple,” Harte said. “That’s because the earnings can be volatile. On a price-to-book basis, the stocks are trading a little over two-times book. They should be trading higher than that. So, they’re certainly not bargain-basement valuations, but given how good their earnings have been, I’d argue the price-to-book multiple should be quite a bit higher.”
Harte said the stocks offer investors the opportunity to get back to basics.
“One of the things I like about the investment banks is you’re making a play on the history of cyclical economics – not trying to forecast what the Fed is going to do next,” Harte said. “My bet is the Fed is going to stay pat for quite a while and maybe, if anything, start raising – not cutting. If the Fed starts cutting rates, it’s for all the wrong reasons, implying that the economy is going the wrong way.”