UBS senior bank analyst Brennan Hawken took on Bill Gross' bearish sector call on Thursday, saying it is a good time to buy financials.
In his latest Investment Outlook report, Gross, bond fund manager at Janus Global, said negative yields threaten bank profit margins as yield curves flatten worldwide and bank net interest rate margins narrow.
He said investors should not be tempted by the recent rebound in bank stocks, which has seen them rise 4 percent over the last month.
Banking stocks in the are down 12.3 percent year to data as investors worry over loan losses in the ailing energy sector and persistently low interest rates.
The declines banks have suffered represent a typical downdraft investors see heading into a change in the business cycle and a more difficult credit environment, he said. UBS is indeed expecting tighter credit, but Hawken noted that bank stocks are still trading at a discount to valuation.
"To me, we've priced in a great deal of bad news. Fundamentally, when you look through the loan books, it looks like if we see deterioration, it's really not going to be that bad. It ought to be manageable," he told CNBC's "Squawk on the Street."
"I want to buy them at this level," he added. "We're starting to see them base out."
The big questions institutional investors have are whether enough bad news has washed out and whether the market understands the extent of the pain.
There is not clear answer yet, he said, but UBS became more constructive on banking stocks about a month ago, shortly before JPMorgan Chase CEO Jamie Dimon bought millions of dollars worth of his company's stock.
Even if the United States heads into a "garden variety" recessionary environment, banks may outperform.
In a recession, bank stocks typically enter a four- to six-month period in which they trade sideways, as the rest of the market catches up, he said.
"So if you're sitting in sectors that have actually done relatively better, it might be a good time to rotate out of those and into the early cycle plays, which have already taken their medicine, like the banks," he said.
The absolute upside will only begin once investors fully understand the extent of the pain, he warned.
— Reuters contributed to this story.