Dick Bove's Top Stocks To Buy And Short

Certain bank stocks remain "phenomenally good" while others should be avoided, according to a notable bank analyst.

The Analyst

The Vertical Research Group's Dick Bove recommends buying Bank of America Corp BAC and short selling Goldman Sachs Group Inc GS

The Thesis

Bank of America is a "phenomenally good" stock to own based on its growth of money supply over the next four to five years, Bove said during a recent CNBC "Trading Nation" segment. Assuming the bank's money supply growth rate remains at 6 percent and deposits grow with money supply, then one out of every $9 in growth of money supply "winds up in Bank of America," Bove said. On top of that, Bank of America could get one out of every $20 in loans over the same time period.

It's "very likely" that Bank of America's earnings can grow by 10 percent annually for at least the next five years and the stock could soar 130 percent to $61.50 by 2023, Bove said. 

Goldman Sachs' troubles will carry over in the coming years, the analyst said. The bank's earnings are sitting at a notably low level versus where they were one, five, and 10 years ago. It's  reasonable to assume that Goldman's earnings for the present quarter are also lower than where they were in the prior quarter.

One of the few hopes for Goldman Sachs could come from the removal of CEO Lloyd Blankfein, since he is running a bank that "doesn't make money on an incremental basis," Bove said. 

Price Action

• Shares of Bank of America are higher by 20 percent since the start of 2017.
• Shares of Goldman Sachs are lower by nearly 2 percent since the start of 2017.

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