Where to Hide When Bank Stocks Bomb

NEW YORK (TheStreet) -- A clear case can be made that the fourth quarter looks pretty weak for bank stocks, but where should investors turn?

Uncertainty over the elections, the implementation of health insurance requirements for business, and the "fiscal cliff," are all weighing on bank stocks, as commercial loan growth -- a main story for large U.S. banks over the past year -- looks to be drying up until the first quarter of next year, as businesses take a wait-and-see approach to expansion plans.

The fiscal cliff is the possible year-end expiration of the income tax cuts -- including the 15% maximum tax rate on qualified dividends -- signed into law by President George W. Bush and extended by President Obama in 2010, as part of the compromise with Congress to raise federal debt ceiling limit. The 2010 budget deal also requires major federal budget cuts beginning in 2013, unless Congress acts.

With the threat of the U.S. economy slipping back into recession from the combination of tax increases and federal spending cuts, most analysts expect a congressional compromise to extend the tax cuts again and avoid the spending increases, but not until very late in the fourth quarter.

Professional investors are taking different approaches in handling a possible short-term meltdown for financial names. Some say that the long-term story of economic recovery is intact, and that banks should benefit over the next couple of years from the housing recovery, as well as a "coordinated global period of economic recovery," according to Fifth Third Bank senior vice president and chief investment strategist Jeff Korzenik, who favors "a balanced approach," to investment allocation and says "financials, energy and healthcare are always affected by elections."

"We take a little bit different view," Korzenik says, "and think that by the fourth quarter of next year, the economy will be almost like the old days."

"We see the green shoots in China," he says, "and the U.S. housing recovery will be in full bloom" by the end of 2013.

Among the banks, Korzenik still likes JPMorgan Chase (JPM), and American International Group (AIG), "where you have an interesting buyback story, so we think there are places to be, in those sectors, despite all the short term problems."

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