In the wake of positive earnings reports from JPMorgan Chase, Goldman Sachs and Citigroup this week, ace bank analyst Dick Bove of Rafferty Capital Markets says now's a good time to buy big bank stocks.
The companies are benefiting from low interest rates, he tells Yahoo
. The Federal Reserve has kept its federal funds rate target at zero to 0.25 percent since December 2008.
"What's working is commercial lending, trading and investment banking," Bove argues.
He also cites very attractive valuations. "Citigroup sells at a 25 percent discount to book value. Bank of America sells at a 31 percent discount to book value. There is simply no reason for that.”
Goldman, Citi and JPMorgan are "underperforming stocks which are showing good earnings, yet selling at big discounts to book value. That's a good reason to buy," Bove explains.
The KBW Bank stock Index has returned 8.5 percent in the last year, compared with 15.3 percent for the S&P 500.
To be sure, Bove isn't so hot on regional banks. "Anything related to residential mortgages or home equity loans has not been working," he notes.
Meanwhile, the surging dollar will prevent the Fed from increasing interest rates until next year, Bove predicts. "The Fed can't raise rates with the dollar this strong."
Laurence Fink, CEO of Blackrock, sees things a bit differently on rates.
"Global interest rates are creating huge pain," he tells CNBC
"This is something that's misunderstood and not talked about enough. Everyone appreciates how low rates accelerate the equity markets, but it's certainly creating quite a bit of havoc with a lot of our clients."
Almost six years into the economic recovery, the 10-year Treasury yield stands at a paltry 1.88 percent.
"I don't believe central banks appreciate what low interest rates do to the long-term interests of insurance companies, pension funds, retirement plans," Fink explains.
And what is the ramification for investors?
"If you think rates are going to stay that low longer, you're going to see more and more people moving into equities, into more alternatives," he notes. "We're seeing that conversation now. We have one of the top-ranked European equity funds in the world, and we're seeing huge inflows into our European equities."
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