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Stock Analyst Update

Bank Stocks Cash In on a Little March Madness

But the Fed may dampen investors' enthusiasm Tuesday.

After shunning the banking sector for nearly nine months, investors couldn't get enough of the industry Thursday and pushed the group up almost 10%. But this attraction may simply be spring-time flirting, not a full-blown love affair.

To be sure, most well-run banking companies are undervalued. They have consistently posted double-digit increases in earnings, and losses associated with bad loans have been few. Many companies, including Citigroup (C) and FleetBoston Financial (FBF), are expected to beat analysts' consensus earnings estimates when they release first-quarter results in mid-April. Yet the average price/earnings ratio for the banking industry is 14--less than half the average P/E ratio for S&P 500 stocks. In short, these bank shares look cheap.