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Dick Bove: Bank Stocks Set to Double in Price

By    |   Wednesday, 05 March 2014 11:23 AM

Bank stocks are set to double, says Richard Bove, vice president of equity research at Rafferty Capital.

Banks have posted record quarterly earnings, Bove pointed out on CNBC. Add that to expectations for positive economic growth, and you have an environment where banks will soar higher, he projected.

“If you're looking at the banking industry as if it was manufacturing and you think of the bank balance sheet as basically a factory, the industry is operating at 65 percent capacity,” Bove said.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

“If the economy is going to grow at the rate that Mr. Bernanke, myself and others believe, then it will ultimately get to 85 to 90 percent of capacity,” he added. “That will drive earnings much higher than they are at the present time and it will get these stocks up to this 2.25 to 2.5 times book level, which will be 100 percent higher than where they are right now.”

Bove believes the gains will be just about across the board, from small to large banks. And for 99 percent of those banks, the growth will come from an increase in loan volume and better margins.

Earlier this week, former Federal Reserve chairman Ben Bernanke said there are good reasons to expect the U.S. the economy to grow about 3 percent this year, reported Reuters.

“Loans will go up meaningfully in an economic recovery, number one,” said Bove.“And number two, if interest rates go up as loans go up you'll see an expansion in loans at the same time.”

Meanwhile, Bloomberg cites the possibility that banks with underwriting departments will get a notable boost from initial public offerings (IPOs).

Goldman Sachs earned an estimated $1.72 billion in fees in 2013—a year in which companies raised $56 billion through IPOs in the U.S., the most since 2007, Bloomberg reported.

According to Goldman Sachs there are already more IPOs in the works this year than at the same time in 2013, with 85 potential deals from around the globe possibly raising $25 billion.

Potential IPOs from the likes of General Electric and Alibaba Group Holding, China's online marketplace, promise to make 2014 another good year for equities underwriters, if markets hold up, Liz Myers global head of equity capital markets at JPMorgan told Bloomberg.

“While we experienced some volatility in the emerging-markets arena early in the year, the potential salve is the continuing positive trajectory of the U.S. economy,” said Myers.

“Assuming that trajectory continues, companies will perform well, and stock prices will follow.”

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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Bank stocks are set to double, says Richard Bove, vice president of equity research at Rafferty Capital.
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2014-23-05
Wednesday, 05 March 2014 11:23 AM
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