Time To Buy Bank Stocks?


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It's no secret that I've been hard on banks in the last two years and have told my subscribers to avoid them at all costs. After all, the major banks and financial institutions were the ones that caused the worst credit crisis in history. Smart investors had no place investing in them.

Well, we just passed the two-year anniversary of the Lehman Bros.  bankruptcy and it got me thinking: Has enough time passed to invest in banks? Have they cleaned up their act?

In September 2009 - one year after Lehman's bankruptcy - I put two iconic banks head to head to see if either was worth owning. The common thinking was that banks had been beaten down so bad that they eventually had to come back. Buying a rebound can be very profitable, but my findings showed that it was not the time to own Citigroup (NYSE: C ). However, my research revealed that it was an appropriate time to buy another bank stock, JPMorgan (NYSE: JPM ). My exact words were: " Don't touch Citigroup with a 10-foot pole, and buy JPM very cautiously. "

So was I right? Just about a year has passed since then, and the only way to find out is to look at the past year's performance.

Citigroup closed at $4.12 and JPMorgan closed at $28.39 on Sept. 15, 2009, the day I released that advice. Today, Citigroup and JPMorgan closed at $4.06 and $37.69, respectively.

That means that if you had bought those stocks on that day, one year later you would have posted a 1.5% loss in Citigroup and a 32.8% gain in JPMorgan.

Citigroup just reported its third consecutive profitable quarter and surprised analysts and investors in the process. It's a great milestone for the company and a positive sign for the recovery, but sales growth, margins growth and return on equity are still behind the curve. So my verdict stays the same: Avoid Citigroup.

Is the same true for JPMorgan? The short answer is yes. However, some bright spots do exist in its stock report. Margins growth, earnings growth, earnings surprises and even cash flow are all strong. I would like to see more buying pressure and sales growth before I recommend this stock but all indicators are hinting at a rebound for this company.

The bottom line is that there is still work to be done for the major financial institutions before you should consider buying them. Tax payers still own chunks of some of these companies and until the banks have repaid that money and started back on their growth trajectories, I will continue to be wary of the sector.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks

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Louis Navellier

Louis Navellier

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