Tom Brown of Second Curve Capital and Bankstocks.com says the most famous stock analyst in the country, Meredith Whitney, has missed the turn in financial stocks. The sector will double or triple in short order, Tom says–including Wachovia (WB)–and some stocks will charge even higher. Tom’s key arguments, some of which are expressed in the interview below:
- The stocks rally before fundamentals (in this case bad loans) peak
- Most companies have plenty of capital (contrary to the bear argument)
- Core earnings power remains strong
- Valuations now take into account the rest of the downturn
Tom’s been early on this call before, obviously. But he’s right about stocks rallying before fundamentals.
The big question is whether future writeoffs from Alt-A, prime, credit cards, auto loans, and commercial real-estate loans will force banks to raise additional capital (and, if so, how much). Meredith remains steadfast in her belief that banks (and investors) are still underestimating the future carnage. Tom thinks the worst-case scenario is already in the stocks. Except for WaMu (WM).
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