(Updated with closing stock prices.)
NEW YORK (
Investors have been waiting for bank stocks to start showing some sign of life and might be tempted to now jump in to buy into the sector.
But given the unknowns that continue to weigh on the sector, from Europe to the economy, prudent investors may want to use this rally to sell the underperformers and buy stocks that are actually poised to ride the upside.
Bank stocks are leading the rally in the market, which means bullish analysts who have been consistently proved wrong over the last two years or so, might finally be starting to feel better.
But analysts still seem to be fairly selective in their buy ratings. Most favor the big banks such as
Bank of America
(BAC - Get Report)
because of their attractive valuations.
Bank of America still trades at 0.63 times its tangible book value, although it looks more expensive on a price-to-earnings multiple of 11.4 times, based on consensus estimates of 72 cents per share.
Shares of Bank of America are already up 48% year to date. Bank analysts remain positive about its prospects going by the number of buy recommendations on the stock.
Only one analyst rates it an underperform, according to
. Still, at least two analysts have downgraded the stock from a buy to a hold in recent weeks. Keith Horowitz at Citigroup on Tuesday lowered his rating on Bank of America to "neutral", saying that further upside would be possible only after the bank has proved its earnings power.
Last week, Charles Peabody at Portales Partners also lowered his rating on the stock to hold.
So which stocks should investors weed out from their portfolio?
came up with a shortlist of bank stocks that analysts are least bullish or you might say increasingly bearish on.
We looked at actively traded bank stocks (those with an average 3- month volume of more than 50,000) that have more than 5 analysts covering them and then shortlisted those that have the most sell ratings on the stock, using
We also focused on those stocks that have a consensus recommendation of less than or equal to 3. Bloomberg assigns a consensus recommendation of 1 to 5 to stocks, with 1 indicating that it has the worst rating and 5 indicating that it has the best rating.
Interestingly, the shortlist of stocks are not necessarily the worst banks on fundamentals. In fact, a few of them rate high on profitability metrics, but appear to be fully priced with little room for upside. Analysts tend to be cautious on these stocks because the risk of downside surprises is more.
Companies with earnings disappointments in the recent quarter have also been downgraded by analysts.
five stocks analysts are more bearish on
, ranked by the number of sell ratings in ascending order.