Bank stocks have been pummeled in 2011, down 14 percent so far this year, but does that mean investors should steer clear? Analysts answered with a resounding no yesterday, sighting the losses as a condition of present attitudes rather than a signal that big banks of fading into antiquity. Unlike areas of business like print media, or arenas that have been devalued by advancements or cultural shifts, bank earnings, when investigated with regular financial metrics, tend to be misrepresented. Oppenheimer, employing some rarely applied analysis tools, sought out to prove how traditional number crunching is selling banks short.
Such factors as total franchise value, loans plus core deposits and total dollar premium were considered in the attempt to paint banks as a good deal right now. Given the less than prevalent factors considered, it would be easy to write off the Oppenheimer findings, but across the board, analysts seem to agree that the actual value of banks hasn’t decreased nearly as much as their valuations indicate.
The measures, according to Oppenheimer’s research indicated that bank stocks are trading at around 81 percent of their 2000-06 average, too steep a discount considering the continued prevalence of big banks and their role in the future economy. To ignore why bank stocks have fallen would be remiss. They do face litigation that could change the way they operate and challenge the notion “too big to fail.” The housing market is awful and European debt fears continue to shake stocks, but given their habit of making quick comebacks, predicting the return of these stocks doesn’t seem like all that much of a reach.
That appears to be a sentiment held by a number of analysts who continue to recommend investments in Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), JPMorgan (NYSE: JPM), MorganStanely (NYSE: MS), U.S. Bancorp (NYSE: USB) and Wells Fargo & Company (NYSE: WFC).
It’s explained that the numbers being crunched for the banks of being weighed down by the recession aftermath, with money for mortgage litigation and foreclosures inaccessible and off the books. Asset wise, it’s being asserted that the banks of trading under value. With some added limitations and managerial shifts, they remain loan and deposit franchises that have not declined as sharply as their numbers.
With the discount currently in place, analysts are saying investors will make their money back, once banks learn how to operate and market themselves within their new confines.
Especially interesting to investors are Citigroup, which reached a depressing new low of $40 in recent trading and Wells Fargo, which has been in focus thanks to billionaire investor, Warren Buffet adding it to his portfolio.
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