Though he has been telling investors to buy bank stocks with all their might, analyst Dick Bove says this summer could require a strong stomach for those who followed the advice.
In his most recent missive on the state of financial shares, the widely followed vice president of equity research at Rochdale Securities cautioned of a "long, hot summer" in which "the fundamentals of the banks would be quite good but the market will not be."
The advice runs somewhat counter to his admonitions that investors ignore the bad publicity surrounding banks and instead buy the companies "hand over fist."
"The European debt problems have arisen once again. The seasonal activity of the Federal Reserve is likely to cause the normal seasonal decline in stock prices," he said in a message to clients. "Thus, investors are likely to note continuous increases in bank earnings through the summer but no positive movement in bank stocks."
Banks had led the stock marketrally off the October lows but have been in a bog recently. Financials on the Standard & Poor's 500 have fallen more than 5 percent over the past month, despite a solid collective performance during earnings season.
Worries about the sovereign debt crisishave dogged the banks' performance as have soft U.S. economic data and sentiment that the market is being set up for a sell-in-May event.
But Bove insists that while the industry may take its lumps over the summer, the damage will be temporary. He continues to assert that U.S. institutions are shielded well from problems with European banks that he maintains actually will help their American counterparts.
As such, he advises investors hold on to their bank stocks.
"While I continue to believe that it will be difficult to make money in bank stocks this summer, I think these stocks will outperform the markets in the fall," he said. "Therefore, my recommendation is to hold on to the stocks, buy them in small amounts this summer, but do not expect to make a great deal of money."
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