Thrift stocks staged a comeback Tuesday after heavy losses on Friday, prompting one New York-based analyst to upgrade several New York thrifts just days after he had downgraded them for being overvalued.
Kevin Szocik, who follows New York thrifts for Keefe, Bruyette & Woods Inc., upgraded New York Community Bancorp. and Dime Community Bancshares to "buy" from "outperform" and Astoria Financial Corp., Roslyn Bancorp., and Staten Island Bancorp. to "outperform" from "market perform," after downgrading all five one notch Thursday, citing the high prices of their shares. 
Since his downgrade, shares of these companies fell dramatically, some as much as 21%, as investors who shared Mr. Szocik's sentiment sold the stock.
"It is difficult to say with certainty whether the selling pressure has subsided in the group," Mr. Szocik wrote in a research note Tuesday.
However, these companies will benefit from further margin expansion even if the Federal Reserve is done cutting interest rates, he wrote. Deposit repricing is still to come, as it lags mortgage repricing, and overall deposits could continue to grow due to a sagging economy, he wrote. Mr. Szocik reiterated his view that the fundamental outlook for the New York thrifts is sound.
On Tuesday, New York Community was up 4.79%, Dime Community 3.81%, Astoria 4.6%, Roslyn 1.6%, and Staten Island 3.58%. American Banker's thrift index rose 1.77%, while its index of 225 banks fell 1.85%. The Standard & Poor's 500 index was down 1.5%.
Mr. Szocik was less certain about the West Coast thrifts, though. Keefe Bruyette rates Golden State Bancorp., Golden West Financial Corp., and Washington Mutual Inc. "market perform" and Mr. Szocik wrote that they might experience margin compression due to a different asset and liability mix, he wrote.
Michael J. Grondahl of U.S. Bancorp Piper Jaffray in Minneapolis initiated coverage for Golden West, Golden State, and Washington Mutual on Tuesday with "neutral" ratings and agreed that the group could come under additional pressure. He said that strong mortgage growth was the main earnings driver for these companies. But mortgage origination could fall as much as 30% next year and existing home sales are already showing signs of erosion, Mr. Grondahl said.
"We continue to believe the mortgage market is cyclical and thus are mortgage stocks," Mr. Grondahl wrote in an industry report. "Unemployment is on the rise and we expect the lag effect will dampen demand for housing."
Jonathan E. Gray of Sanford C. Bernstein & Co. LLC, on the other hand, upgraded Golden West to "outperform" from "market perform" on Tuesday, bringing it in line with his rating for Golden State and Washington Mutual.
Mr. Gray agreed that margins will contract next year. Earnings are likely to grow only 3% he said, but the stock is unlikely to fall unless the Fed raises interest rates - as he does not expect in the next 12 to 18 months.
At a recent American Banker roundtable discussion, Laurie Havener Hunsicker, an analyst with Friedman, Billings, Ramsey & Co. Inc., said thrifts are "up against an earnings wall" as margin expansion and loan growth slows and competition from commercial banks increases. Nevertheless, Ms. Hunsicker argued that consolidation would give thrift stocks a further lift, no matter where they are located.
On Thursday, Golden West was up 2.29%, Golden State 1.79%, and Washington Mutual 2.29%.
