NEW YORK (TheStreet) -- After two stellar years of recovery, bank stocks have been sinking and investors are no doubt wondering whether or not the emerging markets worry has presented a buying opportunity.

The KBW Bank Index (I:BKX) rose 30% during 2012 and then rose 35% during 2013. The index was down 3% year-to-date during January, closing Friday at 67.33. A 3% pullback really isn't much when considering the returns over the previous two years, and can be made up over a few strong days.

But a deeper look at the index tells another story. All but five 24 component stocks were down during January:

  • Bank of America's (BAC - Get Report) shares returned 7.6% through Friday's close at $16.75.
  • BB&T (BBT) of Winston-Salem, N.C., was up slightly to $37.41.
  • PNC Financial Services Group (PNC) of Pittsburgh was up 3.5% to $79.88.
  • Regions Financial (RF) of Birmingham, Ala., was up 2.8% to $10.17.
  • SunTrust Banks (STI) of Atlanta was up 0.6% to close Friday at $37.02.

Looking at the 24 components of the KBW Bank Index and rounding out the list adding other major banks including Goldman Sachs (GS - Get Report), Morgan Stanley (MS - Get Report), Discover Financial Services Group (DFS) and CIT Group (CIT), the worst performer during January, by far, was First Niagara Financial Services Group FNFG of Buffalo, N.Y., sinking 18.6% to close Friday at $8.64. There's good reason for First Niagara's slide, with many investors losing patience after years of underperformance, as the bank made a great expansion through acquisitions, and with last week's announcement of a major four-year investment program the company expects eventually to improve its operating performance.

Bank of America's stock keeps rising as the U.S. economy keeps improving, and the stock trades for 10.3 times the consensus 2015 EPS estimate of $1.62, among analysts polled by Thomson Reuters. That's not a very high forward price-to-earnings ratio, when compared to the routine forward price-to-earnings valuations of over 20 for big banks before the credit crisis, however, it is second-highest among the "big six" U.S. banks, most of which achieved returns on equity that exceeded Bank of America's reported 2013 return on average tangible equity of 7.13%:

  • Shares of Citigroup (C - Get Report) were down 9% during January to close at $47.43 Friday. The shares trade for 8.2 times the consensus 2015 EPS estimate of $5.76 and the company reported a 2013 return on average common equity of 7.1%. That's the cheapest forward P/E among the big six U.S. banks, however, Citigroup derives most of its revenue and earnings from outside the United States, which is especially important when the market is so skittish over emerging market (EM) economies. The company's consensus 2015 EPS estimate has come down over the past few weeks, while the other member of the big-six club have seen their consensus estimates rise. Citigroup also saw a high-profile downgrade all the way to a "sell" rating from a "buy" rating, by Rafferty Capital Markets analyst Richard Bove, last week.
  • JPMorgan Chase (JPM - Get Report) was down 4.7% during January to close Friday at $55.36. The shares trade for 8.7 times the consensus 2015 EPS estimate of $6.36 and the bank reported a 2013 return on tangible common equity of 11%. Extraordinary items took their toll on JPM during 2013, including $7.2 billion after tax, or $1.85 a share, during the third quarter, as the company set aside reserves to help cover $17.5 billion in fourth-quarter residential mortgage-backed securities settlements with government authorities and regulators. The bank's fourth-quarter earnings were lowered by $1.1 billion after tax, or 27 cents a share, for legal expenses, which included the company's deferred prosecution agreement with the Department of Justice for its role in the Bernard Madoff Ponzi scheme. JPMorgan's stock has the second-lowest forward P/E among the big six.
  • Shares of Wells Fargo (WFC - Get Report) declined only slightly during January to close at $45.34 Friday. The shares trade for 10.7 times the consensus 2015 EPS estimate of $4.25, and the company reported a 2015 return on equity of 13.87%. The company has little direct exposure to emerging markets which along with its consistently strong performance explains its relatively high forward P/E when compared to its peers among the big six. Then again, for such a strong and consistent performer, with relatively few surprises, Wells Fargo looks like a bargain stock.
  • Morgan Stanley's stock was down 58% during January to close at $29.51 Friday. The shares trade for 9.9 times the consensus 2015 EPS estimate of $2.97, and the company reported a return on average common equity from continuing operations, excluding debit valuation adjustments (DVA), of 5.2% for 2013.
  • Shares of Goldman Sachs were down 7.4% during January to close Friday at $164.12. The shares trade for 9.7 times the consensus 2015 EPS estimate of $16.85, and the company reported a 2013 return on average common equity of 11%.

The performance of the above stocks during January tracks pretty closely to how much revenue they derive from markets outside North America. Citigroup has by far the greatest exposure, with 56% of 2013 revenue coming from outside North America, according to numbers put together by KBW. Goldman Sachs and Morgan Stanley lump North American and South American revenue together. For Goldman, 41% of revenue for the first three quarters of 2013 came from outside the Americas. For Morgan Stanley, 28% of 2013 revenue came from outside the Americas.

So the big banks are still cheap. Their returns on equity won't reach their pre-crisis heights, simply because regulators are requiring the banks to hold much higher levels of capital, hoping to avoid future government bailout scenarios, but the valuations could rise considerably higher over the next few years, as long as the U.S. economy continues on its recovery path.

In a note to clients on Sunday, KBW analyst Fred Cannon wrote that his firm's analyst team had concluded that "emerging markets sell-offs tend to be buying opportunities for financial stock investors, although getting the timing right is difficult. We believe that the current position of U.S. global financial firms-extremely strong capital positions and overall improving credit-should allow history to repeat itself during the current emerging market sell-off."

When Considering Citigroup's prospects, Evercore Partners analyst Andrew Marquardt in a client note on Monday wrote, "Overall, while EM exposure is meaningful for Citi (50% of rev/earnings), we think the recent pressure in shares appears overdone based on our worst case scenario of contagion risk, ultimate loss analysis, [foreign exchange] translation analysis, etc."

Evercore estimates that the "worst case EM risk" for Citigroup could be an "ultimate" lowering of tangible book value of $6.00 per share, with earnings estimates declining 13% to 15%. Citigroup reported a Dec. 31 tangible book value of $55.38 a share, and it is the only bank mentioned here trading below tangible book.

"Further, when we balance contagion downside against potential upside longer-term, factoring in a more [normal] earnings power, etc. we see upside/downside ratio close to 2-1 which we think is compelling for investors.

Marquardt reiterated his "overweight" rating for Citigroup, with a price target of $58, implying upside potential of 33% from Friday's close.

Citigroup's shares were down another 1.5% in midday trading Monday, to $46.70.

This chart shows five-year price performance for the "big six" U.S. banks:

BAC Chart data by YCharts

Citigroup Debate Continues as Global Fears Extend

JPMorgan Has Major Upside When Short-Term Rates Rise

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.