Are Bank Stocks Safe?

June 8, 2009

One of the most frequent topics I'm asked about is bank stocks and whether they're now safe to own.

Even though many banks, like Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM) and Well Fargo (WFC) are now rated A or B on Portfolio Grader, many of these banks have been conducting secondary stock offerings to repay their TARP money, which will likely impede their near-term performance.

Additionally, none of these banking giants is a true growth company despite their relative strength since early March. In fact, much of their recent rally was related to short-covering. This is why stocks like AIG, Fannie Mae and Freddie Mac led the sector even though they're still burning through billions of dollars and need the U.S. government to subsidize their inefficient operations.

The bottom line is that I rarely recommend banks since they don't often generate the earnings growth that my favorite stocks are capable of. I must admit that we're only in the fourth inning of the financial mess.

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