The financial sector as a whole is one of the cheapest in the equity market. Financials have lagged the S&P 500 Index over the past one year, as investors have become much more negative on the nation’s banks. This is because of the prolonged period of historically low interest rates in the United States, a side effect of the Federal Reserve’s easy monetary policy. Since the Great Recession of 2008-2009, the Fed has kept interest rates near zero. The central bank raised interest rates once, last December, which marked the first rate hike in nearly a decade.
But with slowing global economic growth and fears of geopolitical risk due to the recent Brexit vote, many economists are predicting the Fed will be “one-and-done” until 2017. This has resulted in a perpetual weight on the banks. Valuations are compressed across the sector. The good news from this is that many bank stocks are cheaper than they have been in years. Bank of Hawaii (BOH ) is a small regional bank, with a very attractive valuation. It is a strong stock pick for both dividend income and value.