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Valuing Regional Banks

Many prominent value investors and hedge funds have been buying bank stocks heavily during the past few years. After years of deleveraging, fines and restructuring, many banks are now considered to be safer investments than they have been for many years. And, as interest rates get ready for lift off, investors and Hedge Funds are positioning themselves to make a profit.

According to dataroma.com, which lists the top holdings of 64 'Superinvestors', six of the top 20 holdings of the Superinvestors are banks, and financial sector stocks account for 24% of the Superinvestors' total holdings.

Is now the time to get into bank stocks? Their valuations certainly look appealing. A quick screen on Finviz.com shows that around third of the groups in the banks sector are trading at, or below book value.

Highly cyclical

The banking industry is highly cyclical. It mirrors economic activity with a lag. The valuation of bank stocks is, therefore, tied closely to the economic cycle and events that impact perceived book values. A research note from Rafferty Capital Markets, LLC issued to clients last year investigated this trend and...


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