Bank stocks have risen smartly over the past year, with the KBW Bank (stock) Index returning 15.8 percent, well above the 9.8 percent return for the S&P 500 index.

And the party isn't over, says Dick Bove, star bank analyst at Rafferty Capital Markets. "Big bank stocks should be bought aggressively," he writes on CNBC.com.

And why is that?

"Let's start with earnings," Bove says. "What is very significant in most of the bank-profit figures being released in the past week is that earnings from operations are . . . jumping."

Then there's asset quality. "The quality of bank balance sheets has clearly been positively impacted by the reduction in problem loans," Bove explains. "In many cases, banks are selling troubled loans at a profit compared to their marked-down values."

Banks' earnings outlook is bright, thanks to solid economic growth, declining expenses, increased merger and acquisition activity and increased trading activity, Bove says. "Most importantly, investment psychology is shifting toward this group."

As for stocks overall, James Montier, manager of GMO's Global Real Return fund, is concerned about valuations.

He told Citywire Global that he has cut the fund's risk to the lowest level since 2008. He has curbed its stock positions, keeping 20 percent in liquid assets, such as cash, and 30 percent in fixed income.

"In 2007 and 2008 we had about 80 percent of the fund in non-risky assets. This has been the first time since that we have had over 50 percent," Montier said. "This is definitely the most difficult time to be an asset allocator. It’s very hard to find value."

The S&P 500 index carried a trailing price-earnings ratio of 21.24 Friday, up from 19.54 a year earlier, according to Birinyi Associates.

The equity positions Montier is trimming aren't speculative high flyers, but rather blue-chips such as Procter & Gamble and Microsoft. "We still see these names as a relatively good option for equity investors, but as we are value investors, we decided to cut them back a bit as they were getting expensive," Montier said.

Procter & Gamble shares have a forward price-earnings ratio of 18.1 times, while Microsoft's P-E is 17.1, according to Morningstar.

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