Is Financial Sector a good buy now?

[Tempesta]

I have some money sitting on the side. Household names, like Lehman or Merrill, are really cheap. So is financial sector bottomed out?

 

[CitricAcid]

Tough to tell, you could get into a financial ETF (XLF), especially because the yields are so high right now. Wachovia (WB) and Washington Mutual (WM) are in some tough spots with their balance sheets, but others I feel with weather the storm eventually, BAC, JPM, C and WFC. I think BAC has the most upward potential, considering their assets, and outrageous dividend which has been consistently maintained.

FD: I don't own any of these stocks.

 

[FUEGO]

I think we are up around 40% from "the bottom". So are you asking, prior to the 40% gain, was that a bottom? Clearly we aren't at a bottom any longer since just a couple weeks ago prices were a third less than they are now. I was a buyer then, but I'm a holder now (all speculation, of course).

 

[ziggy29]

No one knows where the bottom will be. But I think it's a safe bet that LONG term (say a decade or more), the biggest and strongest names in this sector will have been once-in-a-generation buying opportunities.

 

[audreyh1]

If you are willing to wait several years, this is probably a good time to buy. You have to be willing to endure a year or two of perhaps going nowhere before seeing major improvements. Nevertheless, it's hard to say if you'll get a better opportunity.

Another risk is if you buy into a weak name in this space, the company could still go out of business in the next year or two. So you have to be very careful!

Audrey

 

[newporttony]

I like the financials but would buy an index like XLF rather than single names. Like everyone else, I don't know if they have bottomed, but they are certainly cheaper than they've been in a long, long time.

 

[jIMOh]

I started accumulating T Rowe Financial services this month and plan to accumulate until something else gets beaten down.

Currently buying tech, health care, natural resources and financial services in wife's Roth. The financial services purchases are twice what the other sectors are right now in an effort to accumulate more.

 

[Tempesta]

If you are willing to wait several years, this is probably a good time to buy. You have to be willing to endure a year or two of perhaps going nowhere before seeing major improvements. Nevertheless, it's hard to say if you'll get a better opportunity.

Another risk is if you buy into a weak name in this space, the company could still go out of business in the next year or two. So you have to be very careful!

Audrey

yes I'm talking about long term investment, at least 2-3 years. I never seriously played stock market before, this will be my first time. I'm gonna stick with major names who got beaten down, such as Merrill or Wachovia.

I understand others suggested JPMorgan or Morgan Stanley, which are more stable, but those stocks didn't get beaten down as bad

 

[ladelfina]

I'm gonna stick with major names who got beaten down, such as Merrill or Wachovia.

Tempesta.... ouch. I can't think of two worse choices *unless Enron is still trading?
ooo.. I know.. add WaMu for the trifecta!

3-4 years is not long-term and I think the financials are in for more hurt.

I never seriously played stock market before, this will be my first time.

I would recommend watching one of those Army "hygiene" films first.

--
video about Merrill Lynch
Video- CNBC.com
Whitney has been a chief boat-rocker/truth-teller but watch how even she pulls her punches here.

First she correctly says that everyone was "bad at math", but then backtracks to smooth things over:
".. these guys are ABSOLUTE PROS.. Very Cautious and Very Aware of all the risks.. I think you are seeing GREAT LEADERSHIP here.."

(Of course, what else can she say? Otherwise she would never get in to talk to them.)

Notice, though, she won't go on record as saying Merrill will even be around in 3 years.

Of course this is just one view.. do your own due diligence, etc.

 

[harley]

If you are willing to wait several years, this is probably a good time to buy. You have to be willing to endure a year or two of perhaps going nowhere before seeing major improvements. Nevertheless, it's hard to say if you'll get a better opportunity.

Another risk is if you buy into a weak name in this space, the company could still go out of business in the next year or two. So you have to be very careful!

Audrey

I would never recommend buying individual stocks for real investing. However, if you are talking about a gambing/speculation account, I think this would be a good time. Buy something(s) you like, then fuggetaboutit for 5 or 10 years. It can be fun, as long as your financial well-being doesn't depend on it. And later you can look like a genius, like I did with Apple. Or you can look like an idiot, like I did with Enron and Worldcom. But I never tell people about those

 

[clifp]

I think the financials bottom out on July 15. (Hey that is my story and I am sticking to for at least another month ). Could they test these recent lows? who the heck knows.

IMO, there is a lot of financial stocks with bogus balance sheets, Citi, Merrill, Wachovia, NCC, Washington Mutual and a host of other regional banks.

I also think there is a modest number of financial with institutionally more rational/conservative approach to lending and investing. JP Morgan, Wells Fargo, US Bank, BB&T, Goldman Sachs and smaller regional banks like City National (CYN). There are also plenty of banks like BofA which appear to be ok (meaning the earn enough to pay the dividend and don't need to go out and raise very expensive capital.) but they could be vulnerable if the housing crisis continues to get worse.

The problem with buying the fallen angels is we aren't sure if they are going to survive the crisis or turn into the next Bear Sterns or IndyMac. A stock like JPM is going to survive (or we are all in a lot of trouble) and while it is hasn't fallen a lot down 30% from its peak a couple of years ago. It is paying a 3.7% dividend (and the others ones I listed are paying 4-6%) while you wait for the situation to be sorted out. My general feeling is that banks with stronger balance sheets are going to take market share from the weaker ones and in 3-5 years be even more profitable than before

So this is why I am a stock picker rather than index buyer for financial. However, given your new to stock market investing an ETF like XLF or Vanguard's financials (VFH) makes a lot of sense.

 

[jIMOh]

I am using mutual funds for financial sector- I think there are too many questions to purchase and take on the risk of owning a single company or two... spread the risk out and use a fund or ETF.

 

[audreyh1]

yes I'm talking about long term investment, at least 2-3 years. I never seriously played stock market before, this will be my first time. I'm gonna stick with major names who got beaten down, such as Merrill or Wachovia.

It could be 2 to 3 years of rollercoaster or dead in the water assuming the companies stay in business. At least 5 years and better closer to 10 to see such a bet pay off. Long term = AT LEAST 5 years.

Audrey

 

[cute fuzzy bunny]

Maybe yes...maybe no.

I'm guessing its a 'no'.

 

[ladelfina]

Merrill antics:

“Market is collapsing. No more $2k dinners at CRU!! The Financials are being invicerated! [sic]”

That cri-de-coeur, penned by a Merrill Lynch executive in an e-mail message last November, showed up in an 80-page lawsuit (PDF) filed on Thursday by the state of Massachusetts, which is suing Merrill for misleading investors about toxic auction-rate securities. (Cru is the West Village hot spot whose $78 prix-fixe includes braised Berkshire pork belly and foie gras terrine.)

more fun here:
Scenes From a Merrill Meltdown - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

When you see them e-mailing each other about what's on fatwallet.com then maybe we should send them our dough.

Maybe I should cross-post this on the "Engrish" thread. I love that "invicerated"..
It also serendipitously picks up the newly-lively bacon theme!!

--
too late to edit my above post, but Whitney was unable to articulate an opinion on Lehman (not Merrill) surviving. She wasn't asked that about Merrill. And I had no idea Maria Bartiromo had gone to the Fran Drescher school of elocution. Grating.

 

[cute fuzzy bunny]

There's a whole lot of bad english in that quote.

 

[Hamlet]

I don't like the idea of buying the whole sector. I like the idea of buying banks that stuck to relatively basic lending.

Wells Fargo, US Bank, JPMorgan. I'm leary of BAC after they bought Countrywide.

Disclosure-- I own a fair amount of US Bank and a small amount of Wells Fargo. I also own a fair amount of TCF (TCB), but I'm reluctant to recommend them because they may have more issues than I anticipated.

I have some money sitting on the side. Household names, like Lehman or Merrill, are really cheap. So is financial sector bottomed out?

 

[innova]

I do not and would not own any individual shares - you are taking on non-diversifiable risk. End preach.

I have plenty of exposure to financials by having a value tilt in my indexed portfolio. Consider the cost-benefit and risk-reward by holding a value index which tends to target the sector vs. buying into individual issues or even sector ETFs.

 

[haha]

yes I'm talking about long term investment, at least 2-3 years. I never seriously played stock market before, this will be my first time.

This is an oxymoron. You either "play" the stock market, which by definition is not serious, or you seriously study and research and manage stock and other suitable investments.

Occasionally a forum memeber will refer to "dabbling in individual stocks." Dabbling in stocks is like dabbling in mountain climbing. Usually it is not a very good idea.

ha

 

[chinaco]

Not sure where the bottom is, but the sector is obviously down. Buy low, sell high. I doubt you will pick the exact bottom.

IMO -- If you are willing to be patient for the sector to return, it might be a good time to invest. However, I would use an ETF or sector fund to get diversification, I would not buy individual stocks... you never know which shoe will drop next for a particular bank.

 

[clifp]

This is an oxymoron. You either "play" the stock market, which by definition is not serious, or you seriously study and research and manage stock and other suitable investments.

Occasionally a forum memeber will refer to "dabbling in individual stocks." Dabbling in stocks is like dabbling in mountain climbing. Usually it is not a very good idea.

ha

Gosh Ha Ha you take all the fun out it. I hear it is quite a rush to almost fall off a mountain.

One thing I wish I had done when I was younger was spend a couple of years, entering the various stock market contests. I.E. open up a play account where I was losing fake dollars rather than real ones but do it with a particular goal in mind.

I had one business school class where 75% of the grade was based on your teams portfolio performance trading futures, options and derivatives. We all lost money but I still got an A.

 

[cute fuzzy bunny]

Dabbling in stocks is like dabbling in mountain climbing. Usually it is not a very good idea.

Especially if you're one of those "if at first you dont succeed" types...

 

[CitricAcid]

“Market is collapsing. No more $2k dinners at CRU!! The Financials are being invicerated! [sic]”

That cri-de-coeur, penned by a Merrill Lynch executive in an e-mail message last November, showed up in an 80-page lawsuit (PDF) filed on Thursday by the state of Massachusetts, which is suing Merrill for misleading investors about toxic auction-rate securities. (Cru is the West Village hot spot whose $78 prix-fixe includes braised Berkshire pork belly and foie gras terrine.)

I believe it is the "Commonwealth of Massachusetts", not the state, to throw some more onto the poor English of the quote.

About Wachovia, I wouldn't touch it, considering their huge writeoffs (which will continue) their incredible cut in dividend, and their balance sheet loaded with poor loans. Same thing for WaMu. I still like BAC, paying a dividend yield of 7.8% or so, it is tough to know whether they will keep it up, but they have a lot of capital and a lot less writedowns on their loans than their counterparts. Same goes for WFC.

 

[FinanceDude]

JPM is the only bank I feel is on the right path.

 

[calmloki]

Just ran across this - the impact on banking systems and our economy i dunno: