Analyzing value in US banks
Why banks are better businesses to invest in today is explained by Bill Nygren, CIO-US, Portfolio Manager, Harris Associates.
- Banks carry much less risk today because of better quality lending and significantly more equity, relative to the size of their balance sheets.
- Banks sell at about 80% of book value today, and eight times earnings.
- Slower consumer spending should not be an issue for quality-run banks.
- Institutions within the financials sector are not priced like they are growth vehicles. Mid- and large-sized banks have become comfortable returning capital to shareholders and measuring their success by revenue per share and earnings per share.
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Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.
The price to earnings ratio (“P/E”) compares a company's current share price to its per-share earnings. It may also be known as the "price multiple" or "earnings multiple" and gives a general indication of how expensive or cheap a stock is. Investors should not base investment decisions on any single attribute or characteristic data point.
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