Financials have been the most hated stock by almost all fund managers now.
Financials are priced based on its Tangible Book Value.
These TBV are under attack by these events.
- mortgage putbacks (expected to hurt BAC by $2) thus the stock price has been depressed by more than $3. Easier said, if analyst target was $22 for BAC, we should deduct $3 from it to get $19.
- Foreclosure mess – This hurts the housing market.
Why FINANCIALS are really cheap?
1) The housing market is recovering. No matter how skeptics want us to believe the housing market is dropping, we have seen how mortgage rates might be climbing up in the future.
Americans need and will be buying homes now to take advantage of the lowest rates ever in maybe 2 years.
So this will help cause an uptick in price.
2) Credit losses are declining.
3) Credit increased lately, surprising people who were expecting a decrease.
4) Multiple is really low. BAC is trading at 0.9X TBV
BCS is trading at 0.69X TBV
There is lots of opportunity to reap huge gains in the Financials space now.
I can understand why fund managers love Industrials, Tech and Materials.
However, they will soon realize that Financials is too cheap too. Currently, Financials are consolidating, and ready for a HUGE movement upwards.
I hope we can catch this next wave of Financial rally. I am expecting it to last till March 2011.
My forecast for March 2011 is JPM - $52, WFC - $36, GS - $185, BAC $18, C $5.5
Let’s see how this financials bet works out.
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