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Avoid 'Considerable Downside Risk' in Banks: Pro

Banks were the biggest laggards on the S&P 500 last quarter so how should investors play the sector going forward? Ron Carson, CEO and founder of Carson Wealth Management and Lisa Welch, portfolio manager at John Hancock Regional Bank Fund shared their sector outlooks.

“First, there’s going to be a tremendous amount of credit improvement as the economy gets better, that leads to a lot of earnings leverage,” Welch told CNBC.

In addition, Welch said she sees a wave of consolidation coming in the industry.

“The valuation of this sector looks very cheap," she said. "They’re trading at just around book value and we think that’s very cheap compared to where they've historically traded.”

In the meantime, Carson is bearish on the financials, especially the big banks.

“Financial stocks at best are going to be dead money and at worst we’re going to have substantial decline and it has to do with a further drop in housing prices,” he said.

For example, Carson said if housing prices were to decline another 5 to 7 percent, there will be another wave of foreclosures that will increase the shadow market.

“At best banks will be flat, but I think there’s considerable downside risk over the next 12 months in the sector,” he said.

Welch Likes:

PNC Financial

JPMorgan

US Bancorp

Bank of America

East West Bancorp

Scorecard—What He Said:

  • Carson's Previous Appearance on CNBC (Sept. 15, 2010)

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Disclosures:

No immediate information was available for Carson or Welch.

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