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Experts: Beaten Down Bank Shares Represent Tasty Bargains

By    |   Tuesday, 21 August 2012 12:13 PM

A bevvy of recent bank scandals have soured investors on the sector, with bank stocks underperforming the market as a whole during the past few months.

But all the hating from investors has pushed bank shares to attractive valuations, experts tell Fortune.

The scandals have been all over the news – JPMorgan Chase’s multi-billion-dollar trading loss, Barclays and others’ involvement in rigging Libor and assertions of money laundering by HSBC, for example.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

But some money managers are undeterred. Renowned value investor Bill Nygren has put 23 percent of the assets of his Oakmark Fund into financial stocks.

Some bank-share price levels are "assuming that the worst recession since the Great Depression will happen every five years or so," he tells Fortune. One of Nygren’s favorites is JPMorgan (JPM).

Others are bullish on Wells Fargo (WFC). It has shown a "strong performance in a weak market," writes Morningstar analyst Jim Sinegal.

Fortune also cites credit card titan Capital One Financial (COF). Its credit card revenue is rising in a tough environment, and it price-to-earnings ratio stands at only 9.

While there might be good reason to buy bank shares, Rochdale Securities analyst Dick Bove worries about the impact of increased regulation on the financial system, particularly the Dodd-Frank law.

All this regulation will hurt banks and consumers, while spawning the same kind of “shadow banking market” that helped incite the financial crisis, Bove writes in a note obtained by CNBC.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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Tuesday, 21 August 2012 12:13 PM
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