Barron's: Are banks a "once-in-a-generation opportunity"?

Posted Jul 19th 2008 1:40PM by Tom Taulli
Filed under: Citigroup Inc. (C), JPMorgan Chase (JPM), Washington Mutual (WM), Wells Fargo (WFC), Lehman Br Holdings (LEH)

Back in the early 1990s, the U.S. was mired in a recession and the money center banks were in dire straits. But, of course, it was a great opportunity for investors.

So, are we seeing a repeat? Perhaps so, although, you still need to tread carefully. This is according to a front-page piece in Barron's [a paid publication].

And yes, this week has been particularly encouraging, as seen with a widespread rally in the financials. It certainly helped that there was strength from Wells Fargo (NYSE: WFC) and JPMorgan (NYSE: JPM). At the same time, the results from Citigroup (NYSE: C) weren't as bad as expected.

By any measure -- such as price-to-book values and P/Es -- the financials look extremely cheap. Besides, these companies are taking quick medicine in terms of write offs. In other words, once financials report next year, the comparisons should look strong.

Something else: the Securities and Exchange Commission has implemented new rules on short selling (regarding 19 financial companies). Ultimately, this may relieve some of the volatility.

So what are some interesting possible investments? Barron's mentions a variety of companies, such as JPMorgan Chase, Lehman Brothers (NYSE: LEH), Bank of New York Mellon (NYSE: BK), Wells Fargo, and PNC Financial (NYSE: PNC). Though it might be smart to avoid companies like Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and Washington Mutual (NYSE: WM).

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Tags: Bank of New York, Barrons, BK, Citigroup, Fannie Mae, FNM, FRE, Freddie Mac, inthenews, JPM, JPMorgan, LEH, Lehman Bros., PNC, SEC, Washinton Mutual, Wells Fargo, WFC, WM

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Reader Comments (Page 1 of 1)

7-19-2008 @ 2:33PM

william lindblad said...

Depends, do you believe what Washington tells you? If you are a believer, than buy,buy and buy. Of course if you are not, than you might want to wait this event out. As you state they were a good buy in the RTC era, However this is not a repeat. It may look like it, but the only real similarity is problems in the financial area and this is NOT confined to the U.S. The loot that fed the boom of the late 80's and the resulting RTC era was DOMESTIC and it was only in the billions. This time it is worldwide and in the trillions. Even if you adjust for inflation you are going to come up short - way short.
Cox's moratorimum on shorts is there for one reason only - market stability and it is good for 30 days. While I agree with the government position and suggested this before they took action, I also know that there is no legal precedent. On that standpoint he really does not have a leg to stand on as the exec's of both the F's have said that they have "no problem". Hence, there is no apparent national emergency and no good reason for the SEC to curtail a legal means of trading. The same can be said for the Senate proposal to do something similar with the oil market. This sounds good also, and I support it, but the oil market goes way beyond our borders and the whole idea may be little more than talk.
I think this can be summed up easily - if you are young - be agressive, if middle road - cautious - if near retirment or there - conservative.
I don't think this at bottom and I do have a little company these days.

7-19-2008 @ 10:06PM

CHUCK ROTHSTEIN said...

IF YOU ARE CONSERVATIVE AND HAVE PATIENTCE
FINANCIALS WILL RETURN.....IF YOU ARE IN A HURRY AND DON'T MIND THE RISK THERE ARE PLENTY UNDERPRICED STOCKS RIGHT NOW.

7-20-2008 @ 6:59AM

al coholic said...

We know Market always punishes the good with the evil. The trick is distinguishing between the two. As Peter Lynch would, I'm keeping an eye on regional and local banks in my area I'm familiar with, looking for one or two that don't deserve their current price.

I thought Regions might be a candidate at $7, but it turns out they have a large Florida exposure. Wachovia? Many don't like their loan portfolios. Sun Trust? I don't know much about them and why they fell so hard.

There just have to be some great bargains out there is this sector.