Bank stocks are getting ready to embark on a big decade that Wall Street doesn't see coming, according to noted bank analyst Mike Mayo.
The 2020s is shaping up to be a Roaring Twenties for the financial market after banks underperformed for more than a dozen years, the Wells Fargo senior banking analyst said in a note Monday. The Roaring Twenties refers to the 10-year period of economic prosperity and cultural advances, particularly in the United States, nearly a century ago.
"This is the golden decade of banks and technology," Mayo said Monday in an appearance on CNBC's "Fast Money." "Tech is the enabler. It's going to take banks on this multiyear trend of improving efficiency, better returns with a lower-risk profile that's still being underappreciated by the Street."
Mayo, a widely regarded banking analyst, explained that the financial sector is primed to make big advances over the next 10 years after three straight decades of lagging the broader market. The 1990s was marred by consolidation, followed by growth in the 2000s that ended in a financial crisis, and the recovery decade of the 2010s that will come to a close Tuesday.
Banks recorded their worst revenue output in 80 years and underperformed the market by double digits in the current decade, Mayo said in the note.
"You've had two lost decades of bank stock performance. Bank stocks underperformed this decade by over 20 percentage points," he said on CNBC. "So, yes, 2019, you know, was a recovery, and we think that's just a taste of the decade to come."
However, Mayo suggested that this decade was not a complete loss for the banking industry.
"Let's look back at the last decade and give a big thank you to the regulators," he said. "The regulators have hard-wired the banks for greater safety and stability."
Mayo recommends investors stick with the winning financial stocks of Citigroup, Bank of America and J.P. Morgan Chase, whose stocks have gained about 53%, 43% and 42%, respectively, year to date. Tuesday will mark both the final day and trading day of 2019. The market will open for a new year of trading on Thursday.
Last week, Wells Fargo raised its price target on Citi to $97 per share from $85 and raised its price target on J.P. Morgan to $150 a share from $125 per share.
Mayo crowned J.P. Morgan as the "best in class" and Bank of America as the top banking play in the financial technology arena.
Yet, Citigroup is the firm's favorite "because it's just so inexpensive and they're buying back so many stock" and it is "still underappreciated" for reducing risk, the analyst said, adding that the company has more restructuring to do.
"Big and boring is beautiful for banks, and that's not appreciated for the sustainability element," Mayo said.
He went on to warn that investors should "be worried" about the chances of a recession or another financial crisis in the future.