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Bove's Bank Stock Picks after Fannie, Freddie Move
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A number of U.S. banks stand to gain after the government takeover of Fannie Mae and Freddie Mac, as the move, coupled with the Treasury decision to buy mortgage-backed securities, brought much-needed liquidity back into the market, Dick Bove, analyst at Ladenburg Thalman & Co., told CNBC.
"We like Bank of America [BAC
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], we like Citigroup [C
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], I like Wells Fargo [WFC
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], I like BB&T [BBT
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], PNC [PNC
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], US Bancorp [USB
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], there's a number of bank stocks that I like simply because these companies have the potential to show sharp earnings advances over the next couple of years," Bove said.
Analysts have said the government bailout will deal a blow to banks because they will lose on the preferred shares they hold in Fannie Mae [FNM
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] and Freddie Mac [FRE
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], but Bove said this will be a one-time hit.
"Once that one-time hit is over, you have to start looking beyond that," he said, adding that the banks listed above had good long-term earnings possibilities.
"Wells Fargo has no competition on the West Coast. Wells is sitting in a vacuum and is making a great deal of money because its competitors have gone away. That's why you buy Wells Fargo," Bove said.
The Fannie and Freddie bailout unlocked the liquidity in the market and that is why mortgage rates fell on Monday. But they are likely to rise again if the two government-sponsored enterprises are forced to reduce their portfolio, he said.
"This is no benefit to housing whatsoever," Bove said. "If they start shrinking, they'll take money (out of the housing sector) not put it in."
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