(Reuters) - Some investors are betting U.S. bank stocks will have a comeback this year, arguing the sector is a value play after getting beaten down in 2018.
The S&P 500 Banks Index rose 8.3 percent in the first three months of the year, compared with a 13 percent gain in the S&P 500 Index. Last year, the bank index dropped 16.4 percent, versus a 6.2 percent drop in the broader benchmark index.
In addition to being relatively inexpensive, investors like Brant Houston, who covers financials in the Denver office of CIBC US Private Wealth Management, say the U.S. bank sector offers better value than other industries.
“Investors need to be picky about which banks they invest in, but, in general, the banks offer good value for patient investors,” he said. “The big banks are growing their book value per share, reducing share outstanding, while sporting attractive dividend yields.”
Among the major S&P sectors, the bank index has the lowest forward price-to-earnings ratio, at 10.6, followed closely by the broader financial sector index at 11.6. Bullish investors who spoke to Reuters also pointed to the prospect of additional share buybacks, higher dividends and a turnaround in capital markets businesses, which were weak during the first quarter.
However, they warned it could take some time for financials to catch up. That is especially true since the U.S. Federal Reserve has taken a more dovish stance on interest rates, which help fuel bank profits.
“For patient investors with longer-term holding periods, banks could be an interesting buy,” said Sylvia Jablonski, managing director, capital markets – Institutional ETF Strategist at Direxion.
Reporting by Suhail Hassan Bhat; Editing by Lauren La Capra and Sweta Singh