Bank Stocks ‘Dirt Cheap’ as Image Starts to Turn: Bove

A shift in attitude towards banking is presenting investors with an opportunity to buy "dirt-cheap" stocks in the sector, industry analyst Dick Bove told CNBC Tuesday.


The Rochdale Securities vice president of equity research has long held that big banks have been most hampered not by their balance sheets by rather by negative perceptions — from Washington, Wall Street, and individual investors.

But as positions improve and policy makers begin to indicate that some of the more onerous new regulation proposals could be eased, that in turn presents opportunity, Bove said.

"What we're looking at is the complete change in attitude towards this industry from what it's been over the past three years," he said in an interview. "What has killed this industry over the last three years has been the negative psychology. It's not negative any longer."

Indeed, banks have helped lead led the 2012 stock marketcharge, with financials on the Standard & Poor's 500 up 13.5 percent, making it the second-best performing sector after information technology.

In a series of notes this week, Bove has sought to show that many of the banks' cash positions actually exceed their market capitalizations.

Meanwhile, Warren Buffetttold CNBC Monday that banks are looking good, saying he specifically would own Wells Fargo if he was buying.

Bove also said in a note that he is encouraged by recent remarks from Treasury Secretary Timothy Geithner regarding the Volcker Rule, which was designed at restricting or eliminating banks' ability to trade for their own benefit, a practice known as proprietary trading.

Bove believes the rule will be relaxed "in a fashion that will offer traders a great deal of discretion."

Meanwhile, at the JPMorgan Chase investor conference, bank officials indicated that the company has earnings power 33 percent higher than current levels and likely would sharply increase its dividend, which Bove sees heading to about $1.70 a share.

"If you take a look at this industry based on any historical comparison to what the true value of the companies would be, they're dirt cheap," Bove said. "They remain dirt cheap, and the fact is that either you've got to come to the conclusion that the industry will never get back to the multiples it had in the past...or that it will get back to where it was in the past, in which case these stocks are still very, very cheap."