US Banks at ‘Fire Sale Price’: Strategist


“We think that there is an opportunity here. Stocks are cheap, no one wants them, everybody’s afraid of them, that’s a strategic time to be into the market, not leave it,” David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors told CNBC on Wednesday.

Financial stocks were among the hardest hit on Tuesday, with declines of 5 to 8 percent for the big banks like Goldman Sachs [ GS 107.56 +1.43 (+1.35%) ]

, Citi [ C 30.85 +1.03 (+3.45%) ] and Morgan Stanley [ MS 16.94 +0.18 (+1.07%) ], as investors feared the extent of their exposure to Europe’s financial crisis. But those fears have been overdone, according to analysts like Dick Bove of Rochdale Securities, who believes American banks’ exposure to Europe’s debt crisis is limited and banking stocks are now “so cheap”, investors should be aggressively buying them.

Stocks like Citi, for example, are trading at a low price-to-book (P/B) value of 0.57, while Morgan Stanley is trading at a P/B ratio of 0.72, suggesting the shares are undervalued.

Cumberland Advisors’ Kotok agrees.

“There was a time a few weeks ago when you could buy the entire banking sector of the United States at the market prices at which they traded, below their tangible book value. In other words, the liquidation value, that’s cheap. Any time in history when you could get banks below book value, it’s been an entry point, not a time to sell them, and that’s how they’re trading now,” Kotok said. “Not just the big banks, but smaller banks, mid-sized banks, regional banks, the banking system is at a fire sale price.”

The S&P Financial Index, which tracks major U.S. banking stocks, has sold off nearly 20 percent this year, considerably worse than the S&P 500’s 3 percent decline for the year. “In this sell-off, we’re back in,” Kotok said, with further upside for the sector supported by an improving U.S. economic outlook.

He recommends buying U.S. regional banks, which have held up reasonably well, through an exchange-traded fund (ETF) such as the S&P Regional Banking Index, which has gained 15 percent since the start of October.

Source: | November 01, 2011 | 10:48 PM EDT

Learn more about Ron Sloy.


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