Bank stocks are not overpriced by any of the traditional measures used to value equities.

Not one of the 50 large-bank stocks tracked by Montgomery Securities Inc. is trading at an all-time high. Moreover, their price-to-earnings and price-to-book-value ratios are at roughly half the levels of the Standard & Poor's 500.

Investors are said to be "lightening up" on bank stocks, implying that these stocks have peaked and by some measures are overvalued. But in fact, a case can be made that bank stocks are undervalued.

Of course, bank stock prices are not just a function of relative valuations.

Investors are concerned about bank earnings prospects during a lackluster economic recovery, ever-growing nonbank competitors, and slim loan demand despite a 30-year low in interest rates.

At the same time, many investors have piled up sizable paper profits during the two-year rally in bank stocks and now want to realize at least a part of their gains.

Unanimity on Outlook

Nevertheless, remarkable unity exists among industry analysts - including some with reputations for bearish views on banks and the economy - that bank stocks are neither overvalued nor at the end of their run.

"The bull run is not over," asserted Thomas K. Brown, a Donaldson, Lufkin & Jenrette Securities Corp. analyst. His portfolio advice: "Continue to overweight bank stocks."

Gerard S. Cassidy of Tucker Anthony Inc., Boston, is less enthusiastic. While agreeing the stocks are not overvalued, he argues they require "a new investment theme" in order to move higher.

Cassidy's View

"Two events drove these stocks over the past two years: anticipation that asset quality would improve as the economy improved and that rates would keep on falling, he said.

"It's played wonderfully for bank stocks," Mr. Cassidy said, "but now the investors who used this twin theme as buyers are saying to themselves, |It's over in banks.' They don't want to stay around too long, as some of them did in the pharmaceutical and biotechnology stocks."

A theme to replace the economic rebound scenario may be industry consolidation, he said, but that would require selective investing rather than a "basket approach."

J. Richard Fredericks of Montgomery Securities agreed that "many investors have already made good money" from banks, leaving the question of "who then will push the group to even higher levels."

Bank loan demand is "nonexistent at the moment," Mr. Fredericks acknowledged, but he argued for a silver-lining theory: The absence of demand has compelled banks "to look elsewhere for [earnings] growth, notably in pricing and cost containment.

So certain is he of a strong fundamental outlook for banks over the next 18 months, the analyst said, that he "honestly hopes" demand for loans won't resurface until a year from now.

Specifically regarding bank earnings, Mr. Fredericks thinks net interest margins "will carry 1992 and surprise investors by their resiliency" and that "credit costs" will carry 1993.

As for bank stock prices, he said, he thinks they "have just gotten back to normal" -- because the huge runup of the past two years began at "absolute bottom."

Since their nadir in October 1990, stock prices of 43 of the 50 largest banks have risen more than 100%, and every bank in the group boasts at least a 50% gain.

Major bank stocks slipped in modest trading as investors headed for the sidelines to await the federal government's monthly employment report this morning.

Wells Fargo & Co. declined $1 a share, to $68.50; Chemical Banking Corp., 87.5 cents, to $32.75; NationsBank Corp., 75 cents, to $44; and BankAmerica Corp., 50 cents, to $43.625.

A few gainers bucked the trend. Banc One Corp. was up 50 cents a share in late trading, to $43.75; Mellon Bank Corp., 62.5 cents, to $40.75.

The Dow Jones industrial average was modestly lower near the end of the day.

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