Bank stocks have been some of the biggest gainers since the election of Donald Trump for president, as increased positive sentiment regarding reduced regulation appears to be a key point of his administration. Some have attested that these stocks have run too far too fast, but CLSA bank analyst Mike Mayo isn't buying it.
"We see 50% upside for bank stocks over the next three years, we are bulled-up on banks," Mayo said on CNBC's "Halftime Report" Wednesday afternoon. "People say the banks have moved too far too fast, what we say to that is the scorecard for President-elect Trump is GDP and jobs."
Mayo contended that both an acceleration of GDP and job growth would require a strong partnership with banks to come to fruition. However, even if the "Trump bump" (which he deduced could provide a 20% boost) doesn't prove to be the catalyst the banks need, he sees an even more important factor driving these stocks.
"Even without that we still think that banks create value for the first time in a decade. We think that banks in the U.S. earn their cost of capital and that's what market collectively is missing," Mayo explained.
He added that if you wipe the slate clean regarding bank stocks, the industry still trades at 1.3 times book value. "In the past when they earned their values and created capital, the valuations were about 25%-33% higher. There is room to grow."
"Bank of America gets the biggest benefit from a Trump bump than any of the largest banks due to larger taxes and higher rates," Mayo said.
(Citigroup is held in Jim Cramer's charitable trust Action Alerts PLUS. See all of his holding with a free trial here.)