Is It Time to Invest in Big Bad Banking?

bigdog posted on 06/15/11 at 09:33 AM

Another straw poll, folks: how many of you have strong opinions about the mid-term prospects for bank and financial services stocks? If you count yourself in this group, do you lean bullish or bearish nowadays, and why?

TradeKing All-Star Alan Brochstein has shared some interesting perspectives lately on bank stocks. In his most recent post, 14 Stocks Sticking Close to Their 10-Year Highs, he cites a few financial services stocks that look to be consolidating recent gains. These aren't the big-name banks so much as what some may consider the shadowy underbelly of finance, like payday lenders EZ Corp (EZPW)consumer-debt company Encore Capital Group (ECPG)pawn stop chain Cash America (CSH) and dollar-store chain Dollar Tree (DLTR)

Alan's earlier post this month, 16 Financial Stocks That May be Bucking the Negative Trend, is also enlightening for bank value-hunters.

Over at Seeking Alpha, contributor Jim Van Meerten thinks Goldman Sachs May be a Bargain, while David Landes suggests a dark - or should I say, tartan-plaid? - horse is worth considering, Royal Bank of Scotland (RBS).

Meanwhile, WSJ's Richard Barley reports that bond investors are rewarding Ireland banks' steady reforms

I could summarize the bank naysayers, of course - but only if I had infinite time to gather all the dissenting views. What's your thinking lately about bank stocks? 

[image: Bank underground station sign by HowardLake on Flickr]


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Posted by bigdog on 06/15/11 at 09:33 AM


mpc220 posted June 15, 2011 (12:32PM)

Stay away, sez I.

I'm sure there are bargains to be found, but who the hell knows what's really on the balance sheets?  Someone was saying a few days ago that American banks had $30+ billion exposure to Greek bond CDS... any idea who has what exposure?  I don't think they break it out for us. 

And housing is slowing down again.  Who wants to be long BAC or WFC or C in an environment like that? 

I'm not saying short these guys, though that would be my instinct, but I sure don't want to own them.

Kevineze posted June 15, 2011 (12:54PM)

I would invest in Bank corporate bonds. i would touch the stock of a big universal bank ever though, their time is over and theres just two much uncertainly regarding the regulations and what not. If u do some research you may find a couple regional retail banks that have some potential. But i would look at small to midcap private banks that engage in wealth management services for the affluent american.

sublimevotum posted June 15, 2011 (01:57PM)

By any value-investing criteria, many banking stocks certainly seem like good opportunities.  I'm definitely checking them out as possible long-term investments.  Haven't pulled the trigger yet though.

spshapiro posted June 15, 2011 (02:21PM)

Assuming that I'm funding my unborn grandchild's Roth IRA, JPM and STD.

incubus posted June 15, 2011 (03:07PM)

Shap sums my thoughts exactly, maybe in a decade or two.

ICI fund flows over the last few years tell the story for financial services, which promotes the wisdom of self directed retail brokerages like Trade King.

In projecting where and what the government may want to bolster for future jobs and economic growth, financials have seen their day.

Energy alternatives, gas or solar and wind.

Intriguing companies like Bloom energy or Solazyme are the future, not derivatives, HFT, dark pools, prop trading or conspicuous lending.

russianmunkee posted June 15, 2011 (11:02PM)

So Google Wallet was recently released. And the move of mobile payments has set sail. If Google's pushing for it, you know there's gob-loads of money to be made.

And if you look on their main page:

the main graphic has a CITI credit card logo.

I took a look at C's track record for the last 10 years...and it used to be a machine - ranging $400-$500 per share just a few years ago. Then it crashed and hasn't picked back up....

But with it so cheap right now, and it appears Google is promoting them...does it seem likely that they're going to spike soon? 

Would it be wise to invest a good chunk of change on these assumptions?

Thanks so much for your feedback.

Eph2013 posted June 16, 2011 (03:57PM)

Honestly, banks just seem like a terrible idea. Like MPC pointed out, their future is in the hands of Greece, Portugal, Ireland, etc... Too many weak links for me to believe that they will not tank again. What's more, unless we believe that borrowing and employment in the US will pick up (or, rather, SHOULD pick up, given that nothing has changed), there's no reason to buy a big bank stock. 

bigdog posted June 17, 2011 (09:17AM)

Wow, talk about a conversation-starter! Seems like we have the full range of sentiments on big-bank stocks represented here – although no raging bulls, which may be a telling absence.
Mpc220, Eph2013: I agree, the Greek / EU banking crisis continues to make me nervous. It’s also possible we haven’t seen the end yet of banks releasing whiffs of those toxic assets hidden in their balance sheets.
But consider the counter-argument: in a globalized economy, sectors are more interconnected than ever. We may never see a day again when you can name a major international stock without all kinds of apparently unrelated sector cross-exposure.
You’ve peaked my curiosity about Google Wallet, too. I’m with russianmunkee: whenever I hear Google has entered a new business line, my first reaction is: how soon will they dominate THAT, too? Google Documents is so impressive, it made me think MSFT Office’s days were numbered. Then again, that was years ago – no sign of Mister Softee’s demise yet.
By the way, lots of new faces among these comments – new to me, anyhow. Welcome to TradeKing!
Be Good,

russianmunkee posted June 17, 2011 (09:41PM)

Thanks for the response! Appreciate the support. I just joined this community and so far everybody seems really wise and helpful.


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