3. Ne'er-Do-Well Banks Recuperate
A third theme is right there with the insurance companies: the banks. I think people don't understand that this group is so far behind the market that we tend to think that it is never coming back -- at least if you think about the book values.
But something happened in this market in the fourth quarter: The book value started to come to relevance as a measure of worth. If that's the case, you're going to see some remarkable moves in everything from Regions (RF), First Horizon (FHN) and Zions (ZION) to Morgan Stanley (MS) and Goldman Sachs (GS - Get Report), to Bank of America and Citigroup (C). These are the companies for which the book value had been suspect -- and it may no longer be suspect amid recovery in the kind of paper that is also owned by the insurers.
I know that you could argue I am leaving out the best three -- Wells Fargo (WFC - Get Report), U.S. Bancorp (USB) and JPMorgan Chase (JPM) -- all of which I like. But the theme here is not "best of breed," which is more of an evergreen concept. The theme is the cyclical recovery of the portfolios of the ne'er-do-well banks. I wouldn't overlook Capital One (COF), either, because its credit-card business is hot. Also recall its purchase, for very little money, of the ING Direct business from ING Group (ING) -- a business that is humming.