NEW YORK (TheStreet) -- Bank stocks continue to dig a deeper hole with every negative headline, but analysts feel investors may have hit bedrock.
The 12-month consensus price targets for shares of the nation's 50 largest banks by assets are well ahead of current market prices, according to data from FactSet, showing that analysts feel the market is undervaluing the stocks.
It may be that the market still does not trust the value of the assets on banks' balance sheets. Others say that as banks continue to shrink, valuations also need to be on the lower end of the historical range.Still, analysts argue that the selloff in banks has been overdone. The second quarter results that have been reported so far has also been encouraging with a large number of earnings beats. Loan growth was still tepid, but an improvement from earlier quarters, while banks continue to see vast improvements in credit quality. Analysts at Goldman Sachs believe that bank stocks are still largely a macro trade. "Despite the better underlying drivers and the minimal revisions to next year's estimates, bank stocks have continued to underperform the market," the analysts wrote in a note. "Additionally, the "one-day" outperformance seen in stocks that have reported has then reversed within a day or two, suggesting the market continues to view the sector as a highly correlated "beta" trade." Barclays Capital analyst Jason Goldberg believes that at least some of the macro concerns that are weighing on bank stocks are beginning to ease. "We group investor concerns into four buckets, namely, fundamental, economic, regulatory and sovereign (at the start of the year we were using three, but added 'sovereign'). To the extent there is progress on these fronts in the back half of the year, given where valuations are and how under-owned the group feels, it could give the stocks a meaningful lift," Goldberg said in a note. Here are five bank stocks that have the most upside, based on consensus target estimates and current price levels.
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