Market Pro: This Financial Stock Dramatically Undervalued
With the market on track for its sixth straight weekly loss, the financials were, again the worst performing sector this week by far. In fact, they've been the worst performing sector all year.
But, as Fast Money traders have been saying, the sector is rich with value and on Friday top bank analyst Brad Hintz, the former CFO of Lehman, told us one name in particular was ridiculously cheap — Morgan Stanley . In fact, he thinks MS is 30 percent undervalued.
The obvious question becomes, why?
In a live interview on the Halftime Report, Hintz of Sanford C. Bernstein & Co. reminded the desk that a brokerage firm's balance sheet is made up of securities that are marked-to-market every day.
And right now Morgan Stanley is trading at a 13 percent discount to its tangible book value! "In other words the company's parts are worth more than you're paying," he explained.
Of course, there are other factors dragging down this stock. Trading volumes at MS's equity and fixed income divisions have been less than stellar. And, like the entire sector, the bank is facing FinReg.
"But if you could buy the entire company, shut down the equity and fixed income divisions and take all those securities — you'd make money," Hintz says.
It's important to note that Hintz is not proposing that Morgan Stanley close its capital markets business — he's instead pointing out how cheap the company's stock is relative to its value.
Looking at the big picture, Hintz' call suggests that when the storm clouds pass, Morgan Stanley will be among the winners. He has an 'Outperfrom' rating on the stock with a $31 price target.
Considering he owns MS, Pete Najarian hopes Hintz' is correct. But the financial institution hasn't been able to turn its stock around, he noted. That's true of the banks across the board, the optionMONSTER.com co-founder said. People are still wondering when the banks are going to pay dividends again.
Patty Edwards, chief investment officer at Trutina Financial, doesn't want to touch the banks right now. She thinks there are too many problems with the sector.
* Now a New York City-based broker and asset managers analyst, Hintz served as chief financial officer at Lehman Brothers before leaving in the late 1990s. Last year, "Institutional Investor" magazine recognized him as a top analyst in their 39th annual rankings for the "All-America Research Team."
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Trader disclosure: On June 10, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian Owns (BEXP); Edwards Owns (XLK); Edwards Owns (FXC); Grasso Owns (AKS); Grasso Owns (AMD); Grasso Owns (ASTM); Grasso Owns (BA); Grasso Owns (BAC); Grasso Owns (C); Grasso Owns (D); Grasso Owns (HOV); Grasso Owns (JPM); Grasso Owns (LIT); Grasso Owns (LPX); Grasso Owns (MHY); Grasso Owns (NDAQ); Grasso Owns (PFE); Grasso Owns (PRST); Weiss Is Short (FLR); Weiss Is Short (FWLT); Weiss Is Short (DE); Weiss Owns (TWM); Weiss Owns (UUP); Weiss Owns (QCOM); Weiss Owns (ETP); Weiss Owns (NS); Weiss Owns (HAIN); Weiss Owns (JPM); Weiss Owns (KEY); Weiss Owns (CMA); Weiss Owns (DVN); Weiss Owns (COP); Weiss Owns (HK)
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