August 14, 2011 | In: Financial
Are Bank Stocks Undervalued?
I am watching closely nearly all US bank stocks, and here are some facts from my observations:
- Most of their respective companies are (officially) making money (with the exception of Bank of America).
- Nearly all of them have a very low P/E hovering around 10 (with the exception of BAC that is losing money, and Morgan Stanley that has a P/E of around 28), which means it will take most of these bank institutions a maximum of 10 years with the current bad earnings to buy back all their shares.
- Most of them used to pay high dividends, and will probably be able to pay high dividends in the future (I think by 2012 all banks will raise their dividends, which will make their stocks very attractive).
- All of them are affected by the never-ending effects of the financial crisis.
- All of the remaining big banks are here to stay. Well, nothing is for certain, but I don’t see Citigroup or Bank of America vanishing anytime soon, at least in the next 30 years. After all, they’ve stood still during the most terrible days of the financial crisis and they eventually made it (OK, they needed some government money, but still, they did make it).
- (following is a personal opinion) All the talks about a double dip are just sophisticated ways to play the markets and rob small investors (who will flee the stock market) from their hard earned cash. I do think, however, that there will be some corrections in developing nations, such as India and China when it comes to real estate prices (which will negatively affect the whole cycle).
- Whatever happened or will happen in Europe is already “priced in” for the US banks stocks that have European exposure.
I think you can easily notice that I do believe that bank stocks are undervalued, in fact, they are very undervalued, even when it comes to BAC. But when will they recover? I don’t think this year, and not even next year, there’s just too much going on at the moment for all of them, at the national and the international level. I do think that 2013 will be a totally different story for US banks, as the Euro will start fading by then, and European banks will become less trustworthy, at least for international investors.
Are bank stocks a good investment at the moment? They are, if you want to go long term (I think, for example, C and BAC will go up 3 folds by 2013), but if you’re a short term trader, then stay away, until a bottom is established.