Forget 'Fear Factor': Banks, Market Set to Soar: Bove
CNBC.com Senior Writer
Bank stocks are offering compelling value—while the broader market is poised for substantial gains ahead, said analyst Dick Bove, who believes investors are too caught up in the "fear factor."
The normally bullish Bove has amped up his feelings even higher — despite warning back in April that bank stockslikely were in for a rough summer due to fears about European recession and overregulation in Washington.
That pesky euro zone debt crisis ? It needs only to be removed from investors' consciousness for the market to get roaring again, he said.
"The fundamentals of the industry have never been better. It is only the unknown, unquantifiable, contagion risk which is keeping these stocks down," Bove said in a nearly euphoric note to clients. "Take this issue away and investors may realize that banks are massively oversold relative to the power of their balance sheets and their earnings potential."
Though he is not known for big macro calls on the market, Bove said current low price-to-earnings ratios suggest the Standard & Poor's 500 is on its way to the 1,417 level, about an 8 percent gain from Thursday's open.
Trouble in Greeceand elsewhere, Bove has long contended, will only strengthen American banks, which will get the business that European institutions lose.
But developments this week have the Rochdale Securities vice president of equity research even more buoyant than usual.
Specifically, he counts as positives former President Bill Clinton's suggestion in a CNBC interview that tax cuts are needed to sustain growth; Wisconsin Gov. Scott Walker's victory in a recall challenge; and Republican Mitt Romney's improved chances in the November presidential election.
Also, he said global officials are moving closer to enacting stimulus measures, while the Federal Reserve's "Beige Book" economic forecast, stock market rally and decline in Spanish bond yields also suggest improving conditions.
"Real change is required everywhere in the world and it will happen not just because politicians take some actions," Bove said. "It will happen because events will drive change. This may be a world where everyone looks to governments to solve their problems, but private economies are not dead."
As for the banks, Bove pointed to a variety of metrics, including growing cash, assets and deposits and a decrease in bad loans, to show that the industry is growing despite what he repeatedly has described as an oppressive regulatory environment.
"The big regional banks are doing better than the bulk of the industry in terms of profit growth. The biggest banks are not taking share, the big regionals are," he said. "The smallest banks are being driven out of business by the government."
Bove, in fact, says the U.S. will thrive in spite of itself and its many policy missteps.
"The United States may be in a 1969 to 1982 economy at present; it may be doing everything it can to pull down a very successful system," he said. "But once the European economies are stabilized, animal spirits will re-emerge in this country and the funds necessary for growth will pour out from every corner."
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