Bank stocks have been underperforming in recent months, but investors should exercise patience and take advantage of the attractive valuations being offered in the sector, according to buy-side fund manager Dave Ellison. Ellison, who manages the Hennessy Large Cap Financial Fund and the Hennessy Small Cap Financial Fund, believes that the negative sentiment surrounding banks is overdone and that the sector presents a good investment opportunity.
Ellison points out that the banking sector has faced significant headwinds in the form of low interest rates, regulatory challenges, and negative sentiment towards the industry as a whole. However, he believes that many of these challenges are already priced into the stocks and that the outlook for the sector is improving.
In terms of valuations, Ellison believes that banks are currently trading at a discount to their intrinsic value. He notes that while earnings growth may be modest for the sector as a whole, there are certain banks that are expected to deliver strong earnings growth in the coming years. These banks, in particular, present an attractive investment opportunity.
Ellison also highlights the potential for increased shareholder returns in the banking sector. With the Federal Reserve raising interest rates and banks increasing their capital levels, many banks are now in a position to return a larger portion of their earnings to shareholders in the form of dividends and share buybacks. This, according to Ellison, should provide a boost to the stocks.
While Ellison acknowledges that there are risks to investing in the banking sector, such as potential regulatory changes and a slowdown in the economy, he believes that these risks are already priced into the stocks and that the sector has attractive long-term potential. He advises investors to be patient and focus on finding banks with strong fundamentals and attractive valuations.
In conclusion, despite the challenges facing the banking sector, buy-side fund manager Dave Ellison believes that bank stocks offer attractive valuations and that investors should exercise patience and take advantage of the investment opportunities presented by the sector. While there are risks to investing in banks, Ellison believes that these risks are already priced into the stocks and that a long-term investment approach can yield favorable results.