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Christopher Menkin
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Christopher "Kit" Menkin is of editor (, an internet trade publication for the finance/leasing industry. He has 41 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on... More
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  • Top Rated Bank Stocks Analyzed By SNL Financial 0 comments
    Apr 24, 2014 1:01 PM

    After two straight years of strong outperformance in bank stocks, the sell-side analyst community has narrowed its focus and recommends buying banks that can separate themselves from the pack.

    Banks outperformed the broader markets by 30% in 2012 and 2013, rising close to 77% during that time period. Bank stocks added to those gains modestly in the first quarter, leaving the group trading at close to 1.80x tangible book value, up significantly from the beginning of 2012, when bank stocks traded at approximately 1.30x tangible book value. Much of that growth came during 2013, when the group benefited from investors engaging in an asset sensitive trade, believing that rising interest rates would boost banks' earnings.

    Some analysts believed that trade had more than run its course even at the beginning of 2014. In early January, many analysts no longer saw the bank group as cheap, since a number of bank stocks traded in line with or at higher earnings multiples than historical averages despite a challenging fundamental environment.

    Several members of the sell-side community said early in 2014 that investors would be better served by picking specific outperformers rather than trading the broad bank group as they had in recent years. For instance, Sterne Agee & Leach analyst Peyton Green noted in a mid-January report that stock selection would be more important in 2014 since the group appears "fairly to slightly overvalued." He said banks that could stand apart likely would have one or more positive characteristics such as a strong organic growth profile, the ability to serve as an opportunistic consolidator or have exposure to faster growing niche business.

    Fellow Sterne Agee analyst Brett Rabatin offered a similar recommendation a day later, advising investors to purchase "misunderstood names with potential controversy" or banks with unique growth prospects.

    "On the flip side, we see less value in names at present valuations that will benefit from higher short-term interest rates, but have minimal prospects for profitability improvement and modest growth otherwise in the near-term," the analyst wrote in a Jan. 15 report.

    Keep reading the full report and analysis here:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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