Prime analyst Mike Mayo believes Wall Avenue is underestimating financials forward of earnings season.
Mayo, who follows large-cap banks for Wells Fargo Securities, suggests traders have not absolutely acknowledged the advantages related to the booming inventory market — from merger to wealth administration charges.
“It’s bull market banking,” the agency’s managing director advised CNBC’s “Trading Nation” on Thursday. “It’s a good time to be long banks.”
His outlook comes amid enthusiasm for financials. The SPDR S&P Financial institution ETF simply noticed its fourth optimistic session in 5, up 0.77% on Thursday. It is now risen greater than 10% over the previous three months whereas the S&P 500 is up about 1%.
Two of Mayo’s high picks, JPMorgan Chase and Financial institution of America, are on a tear, too. JPMorgan shares are buying and selling at all-time highs and Financial institution of America is at ranges not seen since February 2008, months earlier than the credit score disaster.
But, Mayo remains to be questioning traders’ perspective towards banks.
‘That is evening and day versus the worldwide monetary disaster’
“You have credit euphoria. I mean this is night and day versus the global financial crisis,” he mentioned. “Banks were stumbling after you came out of the crisis. Now after the pandemic, banks have been a source of strength, and they should have the lowest level of loan losses, in some cases, in history.”
Mayo is one in every of Institutional Investor’s topped-ranked analysts. From 1999 till 2016, Mayo had a promote score on the banking trade. In early 2010, he testified earlier than the Monetary Disaster Inquiry Fee, which was fashioned within the aftermath of the 2008 credit score disaster.
His bullish stance on banks now spans several years.
“Banks during the pandemic played very good defense,” he said. “Now, banks are ready to play offense.”
His positive take on the industry comes with a caveat: loan growth may take longer than anticipated. But Mayo views it as a temporary setback tied to supply chain disruptions and the impact on inventory growth, which is known to spur lending. He also lists the delta variant of Covid as a headwind.
“That may take up some time. But it is likely to come back,” Mayo said. “That’s what I’ll be asking the management teams about during the earnings call.”
In addition, he’s watching inflation’s impact on the banking industry.
“Once interest rates increase, and the yield curve gets steeper, and the short end goes higher — that is going to be a boon for banks and their net interest margins,” said Mayo. “That’ll be great. Now, if you have too much increase in interest rates and you have inflation, that could eventually be hell.”
Mayo suggests it’s too early to seriously consider that scenario. His base case is technological advances are making banks more efficient and propelling them into the multiyear bull market.
“This is the point that’s most underappreciated about the banks. … They spent in the last decade retooling with technology,” Mayo said. “We are very big on the technology revolution at banks, and we favor those banks that not only look good in the short term, but also in long term.”
He also lists Goldman Sachs and PNC Financial among his top plays as earnings season gets closer. It kicks off with JPMorgan’s quarterly results Wednesday.
Disclosures: Wells Fargo Securities’ analyst and/or family and the firm own shares of the bank stocks mentioned above. Wells Fargo has investment and noninvestment relationships with the companies, makes a market in their common stock and has been involved in public offerings of securities.
Disclaimer
