If you favor a stock market sector, and it hits the skids, that’s a perfect time to load up on shares. And this is the dynamic in the banking sector now, says star bank analyst Dick Bove of Rochdale Securities.
Europe’s debt crisis has hit U.S. bank stocks hard, with the KBW Bank Index dropping 24 percent from early July and financial shares in the Standard & Poor's 500 Index down 22 percent so far this year.
"If we look at what's happening in the world today for banks, everything is moving in a positive direction," Bove tells CNBC. "I think you should be buying these stocks hand over fist. But I believed that when they were substantially higher than they are right now."
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It’s not clear exactly why Europe’s debt woes should greatly depress U.S. banks stocks. American banks’ exposure to the debt of troubled European countries is small, and U.S. banks aren’t dependent on their European brethren for financing.
(Rochdale file photo)
"On a fundamental basis, it's almost impossible to believe that these stocks are not dramatically underpriced," Bove says. "However, the market continues to freak out over every conceivable thing that they can come up with.”
Of course a variety of domestic woes bedevil U.S. banks too, including continued problems with their huge holdings of mortgage-related assets and fewer opportunities for them to make money from investment banking. A weak economy severely limits their lending possibilities too.
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