Back in March, we highlighted the bottom call and bullish turn made by TheStreet.com columnist, money manager, and longtime bear Doug Kass. Today, Kass tells Yahoo! TechTicker that he thinks many big bank stocks could double or triple over the next few years, though he expects a bumpy road ahead for the broader market.
The key for banks, Kass says, is that the spread on the interest rates at which they lend out money and at which they borrow money — the “lifeblood” of bank earnings — is historically high. That, and the support these banks have gotten from the government, will be enough to offset any further loan losses for a lot of the big banks.
Among the TARP banks Kass is long on are SunTrust, Bank of America, Wells Fargo, PNC, and State Street. The financial sector represents his largest long investment, he said, noting that these picks are investments — not trades. One big bank he’s not long on: Citigroup. He says he’s shorting companies that sell consumer discretionary items facing “technological and economic challenges”.
As for the overall market, Kass says he is “pretty well convinced that we overshot to the down side” back in March, and that the March low will end up being a generational low. But he thinks there are now limitations to the upside because of a variety of factors, including: overleveraged consumers; inflation; cost-cutting measures by companies that will lead to increased unemployment, which will put pressure on consumer spending; and government intervention. There’s still some upside potential, he says, but the road will be bumpy.
Overall, Kass says he’s neutral on the market at this point. The 1,050 upside target he previously cited for the S&P 500 now may be “a bit ambitious”, he says. He’s increasingly worried that we’ll see a consumer-led “double-dip” in the economy in late ’09 or early ’10.
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