As I recently mentioned, I am of the belief that over the next 6-12 months, the financial sector stocks represent the most attractive areas of the market to be invested in. Not only do I expect bank stocks to rise by 10-15% over the next 1-3 months, I believe these stocks could rise by as much as 50% over the next 6-12 months...so how have I come to this conclusion? Several reasons:
- the selloff in the financial sector has been horrific of late, due in part to forced selling by large money managers and hedge funds that couldn't withstand the losses that occurred; the other main reason is because of the issues surrounding the fragile banking system in Europe (as mentioned in my blogs about "Thanks Alot Europe").
- the book and franchise values of the largest banks are extremely undervalued because of the selling that has occurred. Stocks like Citigroup and Wells Fargo are trading at prices that reflect 60% of their book values.
- with the European banks struggling so much and investor confidence erroding with respect to these European companies, the largest U.S. consumer and business banks will see a massive gain in market share.
- the balance sheets of these large banks has greatly improved since the financial calamity that occurred in 2008. The income statements from these institutions are showing and forecasting explosive growth.
- the concerns surrounding tepid economic growth and the continued weakness in the housing market have become a consensus...and because of such, a lot of these issues have already been discounted in the banking stocks (i.e. these stocks went down because of all the bad news, and now that the bad news is known, the share prices can now start to rebound to the upside)
- low interest rates will serve to have a positive effect on banks. As Federal Reserve Chairman Ben Bernanke said recently the Fed is going to continue to keep rates low through 2013, and by doing such more individuals will be able to afford homes and these low rates will also serve to improve the consumers' "balance sheets" and income statements (since mortgage obligations and payments make up a large part of people's monthly cash flow).
In conclusion, the largest U.S. financial companies that have solid balance sheets and scale are best positioned to grow in stock value over the coming 6-12 months.
