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Published on Sep 22, 2016
Bank
stocks have been close to abysmal thus far in 2016, but investors
looking for the best of the bunch should seek out Bank of America ,
Citigroup , Independent and PacWest , said Ryan Kelley for the Hennessy
Large Cap and Small Cap Financial Funds. Shares of Bank of America are
down 6.5% year-to-date and Kelley sees lots of cost repositioning ahead,
as well as a rising dividend. He also said the stock is cheap trading
at 13 times its trailing 12 months earnings and below book value. "Bank
of America will do much better in a rising rate environment and should
also be able to take advantage of Wells Fargo's problems," said Kelley.
The Hennessy Large Cap Financial Fund is down 6.5% thus far in 2016,
according to Morningstar. The $28 million fund has returned an average
of 1.4% annually over the past three years, putting it the 79th
percentile in Morningstar's financial category. On the large cap side,
Kelley is also bullish on Citigroup, down 9% year-to-date, calling it
the cheapest of the group at 10 times earnings. Kelley said the bank is
earnings challenged in the current environment, but it has the
opportunity for cost restructuring. On the small cap side, Kelley is a
fan of Independent Bank Corp., up 14% thus far in 2016, deeming it a
well-run, mid-size traditional bank playing in lucrative markets in
Massachusetts. "Independent has an attractive geography with loyal
customers and higher average profitability," said Kelley. The Hennessy
Small Cap Financial Fund is up 4.7% thus far in 2016, according to
Morningstar. The $153 million fund has returned an average of 7.5%
annually over the past three years, outpacing 71% of its rivals in
Morningstar's financial category. Finally, Kelley is a fan of PacWest Bancorp, a CA-based commercial bank which is down less than 1%
year-to-date. "PacWest is attractively valued given growth potential and
last year's acquisition of Square 1 Financial, a private equity focused
bank," said Kelley.
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