Financial companies may show more risk appetite in 2012, as the U.S. economy should show steady but unexciting economic growth, KBW analyst Frederick Cannon wrote in a note today. But because of the Dodd-Frank financial regulations and a slowdown in Europe, big banks may not be the best investments among financials next year.
“[W]e expect the best opportunities for financial stock investing in 2012 will be where capital can be deployed profitably, including life insurers, alternative money managers, credit card companies, and smaller-cap names in regional banks and real estate,” Cannon wrote.
That said, Cannon thinks that investors can still see gains from investments in big banks as long as they are choosy.
“Trapped capital will continue to be a theme at the largest financial institutions that received the dubious distinction of being labeled globally systemic this year. We believe that investors need to continue to be very selective about investing in these institutions and, despite compelling valuations, we only recommend three of them (JPMorgan Chase (JPM), Goldman Sachs (GS), and State Street (STT)).”
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