The recent sharp rise interest rates has created a buying opportunity in some financial stocks, according to Bank of America. Surging bond yields have the potential to slow the U.S. economy and damage the financial sector, weighing on bank stocks. The Financial Select Sector SPDR Fund is already down 6.7% over the past month.
However, we believe the sell-off has created an attractive risk/reward for longer-term investors in certain stocks that are trading near [tangible book value], while also operating with healthy capital cushions," the note said. Tangible book value is a way of comparing a bank's equity market value to the assets on its balance sheet. When the ratio approaches one, banks are typically considered undervalued.
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