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RBC's Gerard Cassidy: There Is Still Plenty of Fuel Left in Big Bank Stocks

By    |   Tuesday, 03 December 2013 01:23 PM

Major U.S. bank stocks have tended to outperform the broad market this year, but there is further room to the upside as additional gains could be as much as 30 percent in 2014, according to Gerard Cassidy, a banking analyst at RBC Capital Markets.

Cassidy told CNBC, “There’s meaningful upside left for selected names of the top 20 banks.”

Further big gains would merely bring the banks’ share prices up to normal valuations, he said.

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“When you take a look at where some of our largest banks are trading, banks such as Bank of America [and] Citigroup, they're trading at big discounts to book value and when they return to normal profitability, they should be trading at premiums to book value."

Some banks should benefit greatly as their litigation costs from the 2008 financial meltdown, a big overhang of recent years, are phased out, according to Cassidy.

Year to date, Bank of America’s stock price has ascended 35 percent and Goldman Sachs’ shares have risen 33 percent. The S&P 500 is up 26 percent.

Cassidy predicted 2014 will be a year of accelerating loan growth and a steepening of the yield curve, both of which should benefit bank stocks.

He told CNBC his top pick is Bank of America, followed by Citigroup and JPMorgan.

Standard & Poor’s estimated U.S. banks still are besieged by legal charges of over $100 billion for their roles in packaging and selling risky residential mortgage-backed securities ahead of the 2008 meltdown

Bank of America alone is party to a proposed settlement of $8.5 billion for its role in the financial crash, and is moving to settle claims with Freddie Mac and others.

Cassidy estimated Bank of America may earn $2 per share by the middle of 2015, which could translate to a $20 share price with a price-to-earnings ratio of 10 times. The stock was trading at $15.63 in mid-day Tuesday trade.

Jeffrey Saut, chief investment strategist at Raymond James, said Bank of America is also on that firm’s list of most favorable stocks.

In his weekly commentary, Saut wrote, “If you believe the economy is getting better, and this will show up in loan demand and modestly higher rates, then I think financials are an attractive investment. Financials are ‘economic growth stocks.’”

According to Bloomberg, U.S. bank stocks are up 31.86 percent so far in 2013.

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Major U.S. bank stocks have tended to outperform the broad market this year, but there is further room to the upside as additional gains could be as much as 30 percent in 2014, according to Gerard Cassidy, a banking analyst at RBC Capital Markets.
bank,stocks,loans,economy
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2013-23-03
Tuesday, 03 December 2013 01:23 PM
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