Portfolio Manager Forecasts Large-Cap Financial Stocks Trading at 1.5x Tangible Book Value: Will Fed Mortgage Buying Accelerate this Upside?

Wall Street Transcript

67 WALL STREET, New York - September 14, 2012 - The Wall Street Transcript has just published its Large-Cap Value Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Large Cap Investing - Downside Protection - Value Investing - Risk Mitigation

Companies include: Bank of America Corporation (BAC), Citigroup, Inc. (C), JPMorgan Chase & Co. (JPM), Boeing Co. (BA), Cummins Inc. (CMI), Goldman Sachs Group Inc. (GS)

In the following excerpt from the Large-Cap Value Investing Strategies Report, an experienced portfolio manager discuss his outlook for financial sector stocks for investors:

TWST: So given the types of stocks the fund is looking for, are there certain sectors that have emerged recently as being more likely than others to include those characteristics?

Mr. McGinn: Over the last couple of years, for example, if you look at the financials, they have been absolutely murdered. All of the news tends to be on the negative side because investors are suspicious after what seems to be an overabundance of scandal in that industry. We actually own several of the large banks under the belief that, ultimately, if the economy is to recover - which, of course, we think it is - you can't have a recovery without the big banks involved. And in fact, it can't really start until the big banks start to fully get back to a normalized world and start to lend money.

So we're willing to have Bank of America (BAC), Citigroup (C) and JPMorgan (JPM). These companies are selling below book value, and we believe that once the economy normalizes, they will be valued at their historical multiples. I know that the argument back a couple of years ago, and it was true, was that the book value was overstated, but I believe we've sort of come past that. And if anything, is the case now, that is probably the book value is - if it's anything, it would be understated. But all of these companies are selling well below book value, and normally, banks trade at about 1.5 times tangible book value. So if valuations normalize and banks continue to grow book value there is opportunity for significant appreciation.

My belief is as we go out 18 months to two years, the banks will trade up to historical valuations as opposed to the last couple of years, where they've traded at levels driven by fear of another financial crisis.

TWST: Are there any other sectors that have caught your eye over the past couple of years?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

View Comments (0)