This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

3 Bank Stocks to Sell From JPMorgan

NEW YORK ( TheStreet) -- JPMorgan analyst Steven Alexopoulos said on Wednesday that bank stock investors should consider locking in gains, heading into first-quarter earnings season, and named three stocks he would "avoid."

The analyst said that "with bank stocks above fair value," it was " a good time to lock in gains in front of the mediocre 1Q12 ahead."

Bank stocks have had an amazing run so far this year, with the KBW Bank Index (I:BKX) rising 27% year-to-date through Tuesday's close at 49.90, following a 25% drop during 2011.

Two of the largest U.S. bank holding companies are still trading at sharp discounts to book value and very attractive price multiples to forward earnings estimates, despite runaway year-to-date returns:
  • Shares of Bank of America (BAC - Get Report) closed at $9.49 on Tuesday, returning 71% year-to-date, following an epic 58% decline during 2011. The shares still trade for just 0.7 times the company's Dec. 30 tangible book value of $12.95, and for a relatively low nine times the consensus 2013 EPS estimate of $1.06, among analysts polled by Thomson Reuters. The consensus first-quarter EPS estimate for BAC is 12 cents, with a full-year 2012 estimate of 68 cents.
  • Citigroup (C - Get Report) closed at $36.37 Tuesday, returning 38% year-to-date, following last year's 44% decline. Like Bank of America, Citi's shares are heavily discounted, at just 0.7 times the Dec. 30 tangible book value of $49.81. The shares trade for eight times the consensus 2013 EPS estimate of $4.70. Analysts expect the company to post first-quarter EPS of 99 cents, and EPS of $4.08 for all of 2012.

Turning back to the small and mid-cap names, Alexopoulos said that following a 6% increase in average annual loans during the fourth quarter for the banks covered by JPMorgan, "we look for 3% annualized growth in 1Q on continued [commercial and industrial lending] strength," and for net interest margins to narrow, "although curve steepening and higher mortgage rates could mitigate sec yield pressure."

The analyst said that for "from current valuation levels, for the stocks to be big outperformers vs. the market, we would need to see either (1) loan growth start to make a "V" type recovery or (2) the market would need to believe short-term rates were moving higher in 2013," with JPMorgan seeing "very low odds for either of these potential catalysts to materialize."

"On the flip side," Alexopoulos said, "for the group to materially underperform from here, we think we would need to see either (1) a string of disappointing economic reports or (2) the yield curve flatten," and with "all eyes on the slope of the yield curve," a potential further round of quantitative easing by the Federal Reserve "is a risk factor to current valuations," and "consequently, given the sector run, we would lock in profits."

Saying the "sector positioning favors" the following three names "short," JPMorgan said it "would avoid" the following three small to mid-cap banks, because of "structural challenges to earn above their cost of capital," or "acquisition focused capital return stories."

All three stocks are rated "Underperform" by JPMorgan.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AF $14.69 0.00%
BXS $22.63 0.00%
C $44.66 0.00%
BAC $14.13 0.00%
TRMK $23.85 0.00%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs