Banks took a hit because of the mortgage crisis, but an opportunity emerged for investors. Months after the fallout, does acquiring shares of publicly held financials still make sense?
“Even after the recent run up, bank stocks are still down 30 percent to 40 percent in the last year,” contends Brian S. Sommers, chief investment officer at McKinley Carter Investment Management. He sees opportunity knocking for at least the next year. “The consensus is that charge-offs will go higher, so stock prices of banks must go lower,” he says. He’s slowly buying the stock of banks with earnings growth and strong franchises. He likes Bank of America (NYSE: BAC; Price: $27.76) in part for its robust franchises; PNC Financial (NYSE: PNC; Price: $67.45) for mostly avoiding major subprime problems, among other things; and Vanguard Financials ETF (Amex: VHF; Price: $37.92) to mitigate risk.
Gerald Hanweck, chair of the finance department at George Mason University’s School of Management, suggests looking at banks in “growing communities that have not been affected by the housing debacle.”
Peter Miralles of Atlanta Wealth Consultants suggests multi-regional banks. He likes SunTrust (NYSE: STI; Price: $38.70) for its growth potential and its large hold on Coca-Cola stock; Regions Financial (NYSE: RF; Price: $8.15) due to its growing presence in the commercial banking market; and Northern Trust (NASDAQ: NTRS; Price: $75.32) because of its focus on corporations, institutions (foundations, endowments, nonprofits, universities and the like) and affluent individuals. All three of those can do well in a downturn, he says.
Neena Mishra of Zacks Investment Research doesn’t see an end to the impact of the housing market slump on earnings until 2009. She picked two banks for short-term investing: WestAmerica Bancorp (NASDAQ: WABC; Price: $49.65) in part for its “sound credit metrics and strong reserves position” and Commerce Bancshares (NASDAQ: CBSH; Price: $43.39), because almost half of its revenues come from fee-based income sources, she says.