Value investor David Katz says this bank is a top pick after dip in financials
Value investor David Katz told CNBC on Wednesday he thinks the pullback in financials has created a buying opportunity, suggesting the sector still has plenty of tailwinds from the expanding U.S. economy. Financials are the third-best performers in the S & P 500 this year, trailing only energy and real estate. While they are up about 23% year to date, financials have fallen more than 4% in the past month as Wall Street rotated back into growth. For comparison, the iShares S & P 500 Growth ETF is up over 5% in the past month. Katz, in an interview on "The Exchange," said he believes the renewed strength in growth stocks is a bit of an "outlier." "Coming out of recessions, typically value significantly outpaces growth. Since last September, value has done exceptionally well versus growth. We still think we're in the early innings of that, so you're getting a breather now," said Katz, president and chief investment officer of Matrix Asset Advisors . "We think, on a six- to 12-month basis, that value still has some very good upside opportunities." In particular, Katz said he feels investors now have an attractive level to add exposure to financials following the sector's recent weakness. He pointed to Bank of New York Mellon as one especially promising stock. "They've got so many other things going for them that even if rates stay relatively low, they're still making a great deal of money," Katz said of financials broadly. "An improving economy means, ultimately, there's going to be more lending and it also means their loan portfolio, their bad debt expenses, is going to go down significantly." "We think they're in a good place, and we do think that they're going to be allowed to raise their dividends and buy stock back, so when rates rise, that's just going to be the icing on the cake," Katz added. The investor said he likes BNY Mellon's valuation, with shares trading slightly under 12 times forward earnings, according to FactSet. "They benefit significantly by any sort of rise in rates. If and when the Fed does raise rates — we know it will happen at some point — they have hundreds of millions of dollars that they're not getting on their money market business that will fall right into the bottom line," Katz said. BNY Mellon shares have declined about 4% in the past month. The stock is up more than 16% year to date. "It's selling around its tangible book value. Rarely do you get a good financial institution at that sort of price," Katz said.

David Katz, CIO of Matrix Asset Advisors. Adam Jeffery | CNBC