Top Stories
Top Stories

Nothing uglier than financials, that's why there's an opportunity, expert says

Banks lagging. Will they pick up steam?

There is nothing uglier than the financial sector right now, but every good portfolio makeover starts with a really ugly asset, Mayflower Advisors managing partner Larry Glazer said Tuesday.

"Investors have been voting with their feet, running to the hills, leading all sectors in outflows, lagging almost all sectors in returns," he said in an interview with CNBC's "Closing Bell."

"That's why there's an opportunity here. Finally you have a catalyst. You have the Fed talking about higher interest rates. Finally you have activists stepping into the picture."

On Monday, activist hedge fund ValueAct announced it has taken a 2 percent stake in Morgan Stanley because it likes what it's seen from the bank's CEO.

Spencer Platt | Getty Images

Glazer also thinks good stress test results could mean more bank stock buybacks and higher dividends.

The financials have been sitting out of the recent market rally. Citigroup is down about 10 percent this year, Goldman Sachs is down approximately 8 percent and Morgan Stanley is down about 5 percent during that time.

While there is no crystal ball that will say when the Federal Reserve will hike interest rates, Glazer called it an inexpensive hedge.

"You're buying a group that is trading at a discount to its 20-year valuation with a yield that's higher than its 20-year valuation. It's a cheap opportunity in a very expensive market," he explained.

There is also a lot of election pressure on financials, which may dissipate in November, he added.

Chris Whalen, senior managing director of Kroll Bond Rating Agency, is more bearish on the banks, noting that large banks are unlikely to see much margin lift from rising rates.

He also thinks the banks are becoming very passive.

"Mostly earnings are coming from cost cutting. The banks are being chased out of a lot of businesses because they just can't stay," Whalen told "Closing Bell."

He thinks the value in the industry can be found in mid-caps and smaller banks.

—CNBC's Stephen Desaulniers contributed to this report.