Bank stocks overperforming
Q: Are there any shares still worth buying?
A: It’s important to recognize
why bank stocks have done so well over the past year. Interest rates are rising and profits have grown, which fueled the banking sector’s surge for much of 2016.
However, the big rally came after the presidential election. President Trump has pledged to cut banking regulations and grow the economy rapidly, which could also result in a rate jump. If all of these things actually happen, the higher share prices are more than justified. If they don’t, bank stocks could give up some gains.
There are a few bank stocks that have lagged the market.
For example, Wells Fargo has underperformed the banking sector by more than half since news of its fraudulent-accounts scandal broke. Sure, there was shortterm fallout from it, but long term, Wells Fargo is still an amazing institution that delivers topnotch returns on equity.
Another bank to look at is New York Community Bancorp, which specializes in making loans on rent-controlled or rent-stabilized NYC apartments. The bank’s shares have taken a beating the past couple of years, possibly due to a lack of clarity on the company’s future direction. While there are legitimate concerns, NYCB is one of the most efficient banks and has a high asset quality. Frankel owns shares of New York Community Bancorp. The Motley Fool has no position in any stocks mentioned.