Shares of big banking institutions could double under a best-case scenario, value investor Rich Pzena said Tuesday.
"Banks have rebuilt their capital, and they've started to earn positive returns," he said. "We're sitting in an environment where the upside far exceeds the downside, so it's a great place for a value investor to be."
Pzena, who oversees $26.4 billion in assets, manages the John Hancock Classic Value fund, which saw a 40.5 percent return in 2013.
Three things have to happen for banking stocks to reach their potential, Pzena said, including a recovery in trading volume, putting their litigation expenses behind them and a normalization of interest rates.
If those three things occur, Citigroup could see its $4½ earnings per share climb toward $8 per share, he added.
"If those things don't happen, you sit around and you collect your 7 or 8 percent return on that book, which you're buying at a discount," he said. "And if the good things happen and rates go back to normal and volumes go back to normal and expenses come down, you've got a big upside. So, it's a really nice risk-reward trade-off."
—By CNBC's Bruno J. Navarro