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Dick Bove Makes Fundamental Bull Case for Banks
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“I think it’s the beginning of a real, fundamental rally in these stocks because, remember, these stocks in many cases are still selling at 50 percent of their book value or about two-thirds of their tangible book values,” the Rochdale Securities analyst said Thursday on “Squawk on the Street.”
“You have to assume that if we’re going to see any recovery in the economy, in the financial system, these stocks will at least get back to book value, and I think they’ll go higher than that.”
Bove said it was important to look at the banking industry in four categories — all of which are performing distinctly:
- “Banks like Goldman Sachs [GS
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] and Morgan Stanley [MS
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] that are brokers, really, not banks.” - “Traditional banks like US Bancorp [USB
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], BB&T [BBT
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], PNC [PNC
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].”
- “There are the trust banks that are systems processing and asset management like Bank of New York [BK
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] and State Street [STT
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].”
- “Conglomerates like Bank of America [BAC
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] and JPMorgan [JPM
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].”
“The traditional banks are actually seeing a very strong increase in deposits, in lending and in profits,” he said. “The trust banks are kind of in the middle, the way they always are, but they’re moving in a positive direction in terms of their earnings, and they are in a legitimate growth industry. The capital markets companies, which would be the Goldmans and the Morgans, they’re facing a terrible outlook, you know, because that business is secularly damaged.”
Because the banks are not a monolithic group, Bove said there were several ways to play the sector.
“If you want to treat your money in the safest fashion possible, US Bancorp and Wells Fargo [WFC
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] had picture-perfect quarters. In other words, just about everything that could’ve gone right for those companies went right. PNC a little bit less positive, but still in relatively good condition. BB&T had real good results. So you would put your money there,” he said.
For the highest level of risk and the highest level of return, Bove liked Bank of America, JPMorgan and Citigroup [C
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].
Bove had a price target of $14.50 per share for BAC, as well as buy ratings on Goldman Sachs and Morgan Stanley, both of which he noted had “really lousy quarters.”
“The core business didn’t show any sign of turning around in either one of those companies, so there’s no rush to go charging into Goldman Sachs or Morgan Stanley,” he said.
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