Star bank analyst Dick Bove of Rafferty Capital Markets remains bullish on bank stocks, but he thinks investors have gotten a little carried away in their buying.
The KBW Bank Index of share prices has soared 48 percent over the last 12 months, and 30 percent so far this year.
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"These stocks are still cheap, and they should be bought," Bove writes in a commentary obtained by CNBC. "When assessing the companies, . . . look for those that have shown core earnings growth.."
But now, "it appears that any bank stock will do as long as it has the name bank in it," Bove says. "That is dangerous investing."
He notes that while overall second-quarter earnings for banks have come in strong, core earnings are less impressive.
So far, financial services companies in the Standard & Poor's 500 Index have registered 24- percent profit growth for the quarter.
But for the 28 banks that Bove follows, "second quarter results . . . indicate that for the vast majority there was no improvement in core earnings," he says.
Still, many experts are impressed by the same improvement in bank health that makes Bove bullish overall.
“For the world, it is good news that the U.S. banking system is getting better," Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, told the Financial Times. "The implication is that the U.S. economy and particularly the real estate market are improving.”
Editor's Note Wall Street Insider Exposes Death of Main Street America