Not the Right Time to Buy Banks

Bank stocks are becoming popular again with financial pundits, and I’m here to tell you—don’t fall for this trick!

I am an ex-banking analyst, and I can tell you firsthand that there are too many unresolved issues and too much exposure to the housing crisis for any significant profits to be made. Just look at the housing market and you’ll begin to see what I see. Approximately 11% of the homes in the U.S. are unoccupied, and more foreclosures are still in the pipeline. This is going to continue to create bad press and financial strain for the U.S. banking industry.

Here’s the thing with financial stocks—they look tempting. Bank of America (BAC) is up 23% so far this year. Citigroup is up 19% and Morgan Stanley is up 12%. And analysts are falling head-over-heels in coming up with reasons why these stocks are finally ready to return to favor.

But keep in mind that it was these same analysts last year who predicted that bank profits would climb 32%. Instead, earnings fell nearly 20% as banks were plagued with problems—fallout from Europe’s debt crisis, a lack of management credibility and mortgage loan issues. All in all, financials were the worst-performing industry in the U.S. last year.

I understand that everyone loves an underdog, but the simple fact is that banks should not be a part of your portfolio in 2012.

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