Bank stocks offer no reason to buy

Citigroup and Bank of America are ridiculously low. But while their shares offer good value, that's not enough to justify buying them.

By Jim Cramer Oct 18, 2010 12:11PM

jim cramerBy Jim Cramer, TheStreet


Which way does it cut? Which way? That's what I found myself muttering when the newsstand kid asked me whether he should buy Bank of America (BAC) and Citigroup (C).


Normally, I would tell you no bottom is in sight, right? Kid over his head? Except the past three times he has told me what he was doing, he was buying Riverbed (RVBD) about 50% ago, Visa (V) in the 30s and Chipotle (CMG), all down hard on something he thought was ridiculous.


Those were tremendous buys, and I remember he told me he was going to buy them; this wasn't some sort of "Hey, Jim, I bought Chipotle last week" kind of thing.


I started to mumble something about the legal system in this country, and then I defaulted to saying what we said about the banks in the wrap-up: that they are troubled and we should expect that they could remain under pressure.


He didn't care. He said, "They are low, too low."

You know what? They are. In fact, when I looked through the charts, they seemed like the only bargains out there.


Every industrial is incredibly overextended. Every consumer stock has had a huge run. The retailers have been incredibly strong. Tech's just plain amazing. You really have to search to find something that hasn't spent the past three weeks rallying.


And then there are the banks. They are unfathomably low, as if they are about to be hit by the pain of 2008-09, the pain that took them down to single digits, that felled Bank of America and brought it to its $3 knees.


Except that would be ridiculous. It would be ridiculous because things just aren't that bad. There will be a slowdown in foreclosures, lots of litigation expense and a further push-back in the earnings recovery.


I think when people look back at the group they will say that there were several hundred thousand homes where the process had to begin again, several hundred thousand homes where no mortgages were being paid for, and that there was more real estate that found its way back onto bank balance sheets that shouldn't have had to flow back onto them. I think they will ultimately conclude there were several billions of dollars in lost income.


But it wasn't 2 million homes, and it wasn't tens of billions of dollars, and it isn't like in 2008-09, when the franchises were in jeopardy.


When cooler heads come to these conclusions instead of just selling relentlessly, the stocks will be good to buy. We are not going back to the bad old days when we expected big banks to fail and shot them until proved otherwise.


However, even as the charts say they are low, ridiculously low, even as the newsstand kid says they are low, ridiculously low, the sellers are NOT DONE SELLING. And because of that it doesn't matter how low they are. What matters is that they lack what so many other stocks have -- dividends, beautiful balance sheets, tons of excess capital and a reason to buy them other than the fact that they have come down a lot.


Until we get those reasons, and until the sell orders are exhausted, I will stick by our comments in the roundup this weekend: The bank stocks do represent value, but value is not enough when there is no dividend protection and vicious, relentless selling.


At the time of publication, Cramer was long Bank of America.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


Click here to follow Cramer's Charitable Trust trades.


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Oct 19, 2010 1:31AM
Hate to disagree with you but BOA is a buy, look for 2011 to be a good year for bank stocks. I know I have a crystal ball!!! 
Oct 18, 2010 5:48PM
SirGaf, it's not "next year" yet.  You don't know that C won't be a $7 stock.  And, Cramer has always said C is a spec stock, so "spec" means money you can afford to lose.
Oct 18, 2010 1:28PM

Jim, Remember when a few months ago you espoused Citigroup next year to be valued at $7.00 per share.  I wish that you had issued the cautions you now acknowledge before we jumped in with extended family based on the advice.  But, more importantly for my economics students, and my congressmen, do the algorithems of the Quants interfere with a forward valuation of the Banks.  Are they vacuuming money from societal valuation of those companies.  And do I take you to mean that when the government stops selling shares of C in Febreuary it will then advance in value?

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