When well-known analysts make a major price call, investors and Wall St. usually listen. Outspoken bank analyst Richard Bove has done just that. The former Ladenburg Thalman and Rochdale securities analyst recently landed at Rafferty Capital Markets and has made some bold predictions in a fresh research report. If he is correct, owning large money center banks and other financial stocks may be a winning investment in 2013.
Bove said that while U.S. economic growth has slowed down, investors should be focused on the positive signs. Banks are in generally much stronger positions now than they were during the 2008 financial crisis. With much improved levels of excess capital, solid liquidity and asset quality returning to normal levels. Loan-to-deposit-ratio levels also are set to help boost earnings potential. The analyst expects strong growth for most of the banking industry and sees many banks significantly increasing their dividends.
The three large money center banks that he expects to make 30% or larger moves this year are Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and J.P. Morgan Chase & Co. (NYSE: JPM).
His overall financial sector bullishness does not stop there. He predicts strong profit growth across the entire industry over the next year. His price target increases are in the 20% range for Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS). Bove also favors some of the larger regional banks, like PNC Financial Services Inc. (NYSE: PNC), Sun Trust Banks Inc. (NYSE: STI), Comerica Inc. (NYSE: CMA) and First Republic Bank (NYSE: FRC).
Investors looking for broad financial market participation and diversification may want consider buying the Financial Select Sector SPDR Fund (NYSEMKT: XLF).
What Bove is saying is that banks may retake their book values, something we have addressed with a money center bank book value analysis. Bove's call may be a continuation of what was a positive stance at his prior shop. It also further echoes a recent upgrade from Meredith Whitney, another well-known bank stock analyst.
Bull markets are defined by sector leadership. Transportation stocks have broken out recently and are often a sign that economic improvement is making its way through the country. Secular bull markets are almost always led by the financials. If Dick Bove is right and we see double-digit gains in major financial names, then the long-awaited significant upward move in the stock markets may be at hand.
Filed under: 24/7 Wall St. Wire, Analyst Calls, Banking & Finance Tagged: BAC, C, CMA, FRC, GS, JPM, MS, PNC, STI, XLF