Richard Pzena sees value in big financials and big oil


"Most of the reason that banks are underearning relative to their historical norms ... is economic and not regulatory," says Richard Pzena (NYSE:PZN), who remains bullish on the TBTFs. Low interest rates, weak trading, and "government persecution" are the three factors, and - should these normalize - earnings could nearly double at Bank of America (NYSE:BAC) and Citigroup (NYSE:C), though JPMorgan's (NYSE:JPM) boost would be more modest. Goldman Sachs (NYSE:GS) is another favorite.

Broad financial ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, FNCL, FINU, RWW, RYF, FINZ

Another cheap sector is energy, says Pzena, and based on relative valuation against the broader market - whether price-to-book or price-to-earnings - the major integrated oil companies are selling near all-time lows.

What the market is missing, says Pzena, is the nature of oil investment. The old days saw capital spending one year, and boosted volume the next. Projects nowadays are far larger and require several years of spending before returns roll in. "We think those big new projects are going to perform and produce decent returns." HIs favorites: BP, RDS.A, RDS.B, XOM, TOT.

Broad energy ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, PXJ, FENY, RYE, FXN, DDG

From other sites
Comments (26)
  • Cygnusx3
    , contributor
    Comments (235) | Send Message
     
    So, actions against aggrecious acts of big banks is "persecution" now? Fraud is okay if your bank is big enough?
    30 Aug 2014, 06:53 PM Reply Like
  • vireoman
    , contributor
    Comments (1203) | Send Message
     
    I agree with your opinion, but I recommend spell-check.
    30 Aug 2014, 08:27 PM Reply Like
  • jimpattersonoh
    , contributor
    Comments (311) | Send Message
     
    Yes, that was an egregious typo...
    31 Aug 2014, 07:53 AM Reply Like
  • Maddog55
    , contributor
    Comments (7) | Send Message
     
    What acts were you referring to?
    2 Sep 2014, 10:56 AM Reply Like
  • mag1205
    , contributor
    Comments (2334) | Send Message
     
    It's not the big Banks that are full of fraud but the top executives who move from Govt. to Banks & vice versa. U.S. wall street runs the Govt. & tax payers foot the bill for their stupidities. How can you justify being forced to buy Country Wide & then subjected to corruption charges after BAC too over. Strange but true only in America.
    30 Aug 2014, 07:16 PM Reply Like
  • vireoman
    , contributor
    Comments (1203) | Send Message
     
    There may have been governmental arm-twisting involved in BAC's purchase of Merrill Lynch, but Ken Lewis was dying to buy Countrywide. Check your facts.
    30 Aug 2014, 08:26 PM Reply Like
  • Fernando Soriano
    , contributor
    Comments (926) | Send Message
     
    @mag, Not just a local (US) disease, we are facing a pandemic. Similar cases also in EU and in World institutions.
    31 Aug 2014, 11:29 AM Reply Like
  • Hardog
    , contributor
    Comments (16617) | Send Message
     
    mag
    Not only do Tax payers foot the bill, but the stockholders. I have been hammered on C and JPM in the last few years. Small positions in my portfolio but still a pain in my butt.
    2 Sep 2014, 12:23 PM Reply Like
  • nooseah
    , contributor
    Comments (696) | Send Message
     
    Fed intervention via ZIRP and QE has killed volatility and therefore trading volumes in financial markets. Banks have instead been making money in the fees game i.e. capital raising and structured products but this game too has peaked and unless the Fed 'lets go', investment banking will die on its feet. The IBs are still capital constrained with Basel III just on the horizon (albeit subject to constant delays) and a normalisation of interest rates will expose the toxic waste on bank balance sheets.

     

    In other words, banks are damned either way. Analysts who are bullish on IB prospects simply don't understand the business.
    30 Aug 2014, 07:26 PM Reply Like
  • DoowopDave
    , contributor
    Comments (253) | Send Message
     
    BAC earnings could double? To What? Earnings currently are grossly off due to various settlements and associated personnel costs. If you are saying that earnings could double from $1.80 (which is where they might be if all those costs went away) to $3.60, then I think that's a stretch. First, they need to buy back Mr. Buffets warrants. Then, they need to spend $20 billion buying back 9% of outstanding stock. Hopefully by 2018 we'll get to $2.40 eps & a 72 cent dividend.
    30 Aug 2014, 07:30 PM Reply Like
  • funfundvierzig
    , contributor
    Comments (4400) | Send Message
     
    Bank of America is TBTS, Too Big To Succeed.

     

    This unwieldy and corrupt conglomerate is too complex to manage successfully or for investors to understand its labyrinth accounting and arcane derivative assets. We won't even mention $4 billion of phantom capital suddenly and suspiciously discovered this spring after years of hiding! ...funfun..
    30 Aug 2014, 07:30 PM Reply Like
  • Petrarch
    , contributor
    Comments (1112) | Send Message
     
    both sectors are way undervalued relative to the market on a CAPE basis

     

    P
    30 Aug 2014, 08:02 PM Reply Like
  • sheldond
    , contributor
    Comments (1415) | Send Message
     
    I think it's pretty obvious that as longterm plays both sectors will be pretty nice. Not surprised I agree with Petrarch on another topic.

     

    The way to capitalize on this is to continue averaging in over the next few years. I have some substantial buys at discounts but instead of taking profits here as I might in other accounts is because these plays will grow the book and the cash. Oil prices will eventually......so obvious I can't say it. More people using more oil in the next decade means...... My goal is to buy XON every two weeks for the next decade and see how that works out.

     

    Banks will keep taking their customers money in fees and spreads while cutting costs. Eventually will trade at historical norms because of their ever increasing dividends when they return free cash flow to customers. Investors who got in after the crisis and decided to continue to grow their positions will be richly rewarded compared to many who took the quick profits. My dividends in BAC will some day be more than my initial investment.

     

    These ideas work well in my longterm DCA portfolio and provide me some protection from some of my more speculative positions and swing trades.

     

    D
    30 Aug 2014, 09:13 PM Reply Like
  • King Rat
    , contributor
    Comments (1558) | Send Message
     
    Just in case, I suppose you mean XOM. Wouldn't want you buying the wrong stock by accident.

     

    One thing I do not grasp here is why so many institutions have been fighting to keep QE in place and if not that, ZIRP, yet here some analyst covering them claim nixing ZIRP will increase profits.

     

    Perhaps those fighting for ZIRP were hurting themselves.
    Perhaps there is some gain other than profit that makes banks want to keep ZIRP.
    Or perhaps somebody spell checked but forgot to logic check their analysis.

     

    If those institutions most directly affected byinterest rates would benefit from "normalizing" them, what are we waiting for?
    30 Aug 2014, 09:49 PM Reply Like
  • Petrarch
    , contributor
    Comments (1112) | Send Message
     
    rising interest rates boosts interest margins up to a point until the Fed short term rate is too high and credit contracts.
    regardless banking an energy sectors are a value.
    ceteris paribus they should outperform next several years.
    there are cheap sector ETF's look to them first. not stocks.
    P
    31 Aug 2014, 02:41 AM Reply Like
  • Ron Alwin
    , contributor
    Comments (70) | Send Message
     
    yes those projects will perform well...but and it's a big but..as we export the nat gas etc there will be a uptick and profits, but consumption is declining as more and more energy is created by alternative sources. Also lets assume Morse law is in affect on these new energy sources...well each 18 months they double in the amount of energy supplied...autos getting 50-60 miles MPG..or batteries lasting double.
    The problem I have with large Oil concerns is they have all these reserves and their price is based upon those assets...what happens if consumption decreases??
    On gasoline alone USA probably drives 35 billion miles a month @ 16 MPG thats 2.9 billion gal of gas...but what if it goes to 35 MPG ..thats 1 bil gal of gas or 1.9 bil lees consumed...very large decrease...yes we will always need petroleum products, but the trend is down.
    The play here might be GE...as it has acquired oil field services / Wind energy / power Generation / Aerospace etc etc..
    declaimer I hold small position in GE..because of the fore mentioned paragraph, and UYG from March 2009
    31 Aug 2014, 12:53 AM Reply Like
  • Cygnusx3
    , contributor
    Comments (235) | Send Message
     
    egregious- sorry.
    31 Aug 2014, 01:59 AM Reply Like
  • Archman Investor
    , contributor
    Comments (3297) | Send Message
     
    Nothing to see here.

     

    Just another asset gatherer recommending the same stocks that are already over owned by Americans already.

     

    Zero innovative investment idea. Oh wait why am I surprised??.......
    31 Aug 2014, 10:35 AM Reply Like
  • Scoreboard
    , contributor
    Comments (164) | Send Message
     
    Archman,

     

    I chuckled at your comment, for sure.

     

    So... how about an "innovative" investment idea?
    31 Aug 2014, 03:23 PM Reply Like
  • Maddog55
    , contributor
    Comments (7) | Send Message
     
    Regional banks especailly those below the Mason-Dixon Line. RF, TCBI, SIVB
    2 Sep 2014, 11:02 AM Reply Like
  • Faa Faa
    , contributor
    Comments (24) | Send Message
     
    if all keeps going lower? more losses. the oil companies basically need war for it to go higher.
    31 Aug 2014, 03:26 PM Reply Like
  • David Bowles
    , contributor
    Comments (28) | Send Message
     
    I agree that C is a good investment, and much better than BAC. Lets get the Fed OK next spring and we will be off to the races with this stock. But double is far too pessimistic: I look back fondly to an 11 bagger in C some time ago, $10 to $110. It can happen again.
    31 Aug 2014, 08:18 PM Reply Like
  • Morgan Myrmo
    , contributor
    Comments (969) | Send Message
     
    Since when did To Big To Fail banks get branded with their own acronym?
    31 Aug 2014, 11:02 PM Reply Like
  • dealraker
    , contributor
    Comments (901) | Send Message
     
    Seekingalpha is THE place where those with zero experience with anything financial can post anything they wish no matter how stupid. Here is the GREAT Pzena in 2007 recommending FreddieMac.....and he was literally loaded up with it and tons of other financials only to sell out at the bottom!!!~!!!!!!!!!

     

    http://seekingalpha.co...
    1 Sep 2014, 07:38 AM Reply Like
  • vikramnjnjjdjnd
    , contributor
    Comments (1444) | Send Message
     
    Good job dealraker!
    1 Sep 2014, 10:23 AM Reply Like
  • Maddog55
    , contributor
    Comments (7) | Send Message
     
    Big banks and Big Oil = Sacred cows. Avoid them. Go small, lean, profitable.
    2 Sep 2014, 11:04 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs