5 bank stocks: Time to jump in?

Investors, tread carefully amid the gyrations in this sector.

By Traders Reserve Jun 4, 2013 3:24PM

Bank sign copyright John Foxx, Stockbyte, Getty ImagesBy Michael Shulman

 

American banks are, as a system, the strongest among large industrialized nations. Please do not laugh; Italy may be even stronger, depending on whether you believe that nation will leave the euro.

 

U.S. bank stocks have run based on an incrementally improving economy and the guaranteed profit they are making due to the policies of the Federal Reserve.


And now the stocks have stalled as Wall Street temporarily panics on concerns the Fed is going to ease off on easing. The Fed will ease off on its liquidity programs. But the Street is thinking it will happen sooner rather than later. In reality it will end later rather than sooner, well beyond this year and probably beyond 2014. That being said, the Street's fears are now running the bank stocks to and fro. Here is what to do in light of relative strength and misguided fears: nothing. Let's look at five big bank stocks and how they're faring.

 

Bank of America (BAC)

It's my favorite bank and its stock has almost tripled in two years or so . . . on merit. In March the Fed gave Bank of America a thumbs up to buy back $5 billion in shares, an endorsement of the bank's soundness and capital structure.

 

The stock has run and hit a wall around $14. Earnings will not surprise anyone until 2014, and I see the stock stuck in a trading range for quite a while. Get in at $13, or if it clears $14 and stays there for a while. The stock is good for $22 in two or three years.

 

Goldman Sachs (GS)

It is the best investment bank in the world -- by far -- and Goldman stock has almost doubled in the past 12 months. That should tell you most of what you need to know about the stock.

 

Increasingly, investors want to see how current sudden movement in the Treasury market will impact GS earnings. I want to see the stock, currently in the 160s, punch through $172 before moving in. If it retraces to $150 and holds, that is a terrific buying opportunity. Longer term, GS will continue to be the best company in the sector.

 

Morgan Stanley (MS)

This bank stock crashed, has rebounded and has been hit by Fed fears and profit-taking. The stock's current level at $25 is very important as it may be more of a floor than a ceiling. Unlike BAC or GS I do not like the underlying performance of the business compared to others in the sector.

 

Morgan Stanley is just now trying to rebuild its mortgage business and it is well behind other investment banks in deals and trading activity. Even if the stock breaks out, BAC and GS are better choices.

 

Wells Fargo (WFC)

This stock has been overvalued compared to much of the sector due to Warren Buffett. He personally owns the stock and loves the company. And WFC has done quite well on the earnings front in part due to its climb to No.1 in the U.S. mortgage market.

 

With interest rates rising, the refinance boom is over and the stock has moved too far ahead of itself. Stay away for now.

 

Citigroup (C)

For those of you who read me with some regularity, this is the bank I love to hate. This behemoth does many things well but does too many things with too small a capital base. Just ask the Fed if you do not believe me. I made my bones shorting big banks in the fall of 2007 when Citi was split-adjusted, selling for more than $440 a share. It is now around $53.

 

So, be shy around all bank stocks. The risk-reward profile is not in your favor. And if you have to invest -- I cannot imagine why this would be the case -- think BAC or GS when the time and the stocks are right.

 

More from Traders Reserve

 

3Comments
Jun 4, 2013 11:20PM
avatar
To the (TBTF)  DIE BANK OF AMERICA DIE !   YOUR TIME HAS COME  !
Sep 21, 2013 12:13PM
avatar
Hey Chucksteak try using the english language when you send a reply ! This one is for you (FYB)
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

126
126 rated 1
286
286 rated 2
474
474 rated 3
680
680 rated 4
626
626 rated 5
609
609 rated 6
620
620 rated 7
462
462 rated 8
304
304 rated 9
132
132 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.