The analyst, Robert Patten, who rates Wachovia at Underperform, made the profit-taking call this morning. In his opinion nothing has fundamentally changed to warrant last week's price appreciation. He attributes the gains to short-covering. Wachovia is still facing more credit losses as its option adjustable-rate mortgages (option-ARMs) and commercial real estate (CRE) loans are likely to continue defaulting at an increasing rate.
The analyst also noted that he has already seen this pattern of shares running ahead of fundamentals due to CEO changes. And as long as Wachovia needs to restructure its balance sheet, the stock price hike was premature.
Makes sense to me. With investors' approval of Steel, has Wachovia's balance sheet magically improved? And what can he do to improve it so soon after taking the top job? And even though he said he wouldn't, could that include raising more capital by issuing more common shares (diluting shareholders)?
Anyone who actually had the nerves of steel it takes to play financials this past year may want to pay attention to Patten's call. Recall that Wall Street's leading financial analyst, Meredith Whitney, also downgraded WB to Underperform in July. If you choose to go against her, good luck to you!
Comfort Zone Investing: The unmighty dollar
Five winners of a weak dollar
For a quick-read on the U.S. economy, check the price of gasoline
Reader Comments (Page 1 of 1)
8-04-2008 @ 2:12PM
Harold said...
Financial crises is far from played out. As Secretary Paulson warned several weeks ago, "It will take many months to play out." More than a few banks will go belly up. It's all ahead.
8-04-2008 @ 4:35PM
Brian Turner said...
Have to call this all over-blown fluff.
Financial stocks were pummelled by exaggerated fears of the unknown among investors. The unknown has been quantified now, by taking stock of losses.
So the financials will inevitably move upwards because they remain undervalued.
This is classic:
"Meredith Whitney, also downgraded WB to Underperform in July"
And look how reliable that prediction was: from a low point in the middle of the month, WB are now up over 90%, recovering to June levels.
Honestly, I think a lot of us editors should be more suspicious of analyst comments, which remain biased towards their employer interests, many of which are actively shorting financials. Publishing their doom-mongering only serves their employer interests, not investors at large.
2c.
8-04-2008 @ 4:50PM
CH said...
My gosh! Everytime an analyst says jump many investors say, "How far back?" I'm hanging in there with WB.
CH
8-05-2008 @ 12:50PM
al coholic said...
Are we looking at the same company? Let's see, in the last month the short shares have risen to over 13% of the float? That's a rise of over 20 million shares. And that's even in the face of the SEC's threats to actually enforce the naked short law.
I'm no financial analyst but a quick look at their current situation would suggest that things might be bad enough to justify serious concern. It may be fluff to you but people I've talked to think tht Wachovia isn't far from being on the "list."