"Annaly Capital (NYSE: NLY) is in the sweet spot," says Steve Sjuggerud in Daily Wealth. He says, "It borrows money at a low interest rate and invests it at a higher rate -- and earns the 'spread'."

"The cost of money is historically low, and it's headed lower. Meanwhile, relative to the cost of money, the return on money is higher than it's ever been.

"The ultimate way trade on this historic discrepancy, for high-returns with very low risk, is through shares of companies like Annaly, which is now s now paying a 16% dividend.

"In the latest-reported quarter, the company borrowed money at 3.5%. (The credit markets have calmed down a bit, so its cost of borrowing should be even lower next quarter.)

"It invests the money in government-guaranteed bonds. You remember how the Treasury bailed out Fannie Mae and Freddie Mac? It wiped out shareholders. But it explicitly guaranteed the bonds.

"In the latest-reported quarter, Annaly earned 5.6% interest on these risk-free bonds. Therefore, it earned a 2.1% spread. If the company uses seven times leverage, a 2.1% spread means a 14.7% return on its money.

"Analysts estimate the company will earn $2.50 per share next year. It pays out essentially all of its earnings in dividends. So that'll be a dividend yield of about 19%. This is ridiculous. An opportunity like this only appears during market turmoil like we're experiencing now.

"This is a historic moment. The difference between the cost of money and the return on money relative to that cost is at the most extreme levels I've seen in my career. Take advantage, and buy stocks like Annaly today."

Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.

"Recent valuations in financial stocks suggest either 'the world is coming to an end' or there are some great values," says Gregory Dorsey.

Here, the contributing editor to the top-notch Leeb's Income Performance Letter takes a look at one such "bargain" in the sector: U.S. Bancorp (NYSE: USB).

"So far, the financial sector has written off more than $300 million in assets. By some accounts the damage will rise to $1 trillion or more before all is said and done.

"The selloff, which at its nadir was marked by a 55% year-over-year decline in the KBW Index, pushed the constituent members down to a collective 0.64 times book value and a dividend yield of 9%.

"At those levels, either the world is coming to an end or there are tremendous bargains for investors with the courage of their convictions. Looking hard at the data, we can only conclude the latter is the case, provided you're careful with your investment choices.

Wachovia (NYSE: WB) is out with numbers that were much worse than the Street had estimated. According to MarketWatch Wachovia "lost $8.86 billion, or $4.20 a share, in the second quarter, compared to a profit of $2.34 billion, or $1.20 a share, a year ago. On an adjusted basis, it lost $1.27 a share; analysts polled by FactSet Research had expected a loss of 71 cents a share."

Yikes. A loss of $8.9 billion -- how is that even possible? The company also slashed its dividend to just 5 cents a share and is closing down its wholesale mortgage operations.

I guess the real question is barring a takeover, how long will it be till the whole bank gets shut down? Just think the loss is equal to a third of its entire market cap.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/22/08.

"While U.S. banks have struggled amid the credit and housing crises, Credicorp (NYSE: BAP) has excelled," notes John Reese, who assesses stocks based on the strategies of various well-known and time-tested gurus.

Here, the editor of the Validea newsletter looks at the Peru-based banking firm commerical banker and explains how it "passes the test" for four leading guru strategies: Peter Lynch, Martin Zweig, the Motley Fools, and William O'Neill.

"Credicorp's main subsidiary, Banco de Credito del Peru, actually grew its mortgage business 8.2% in the third quarter of 2007 (the most recent quarter for which data is available) as Peruvians' purchasing power continued to increase.

"My Peter Lynch-based strategy considers Credicorp a 'fast-grower' because of its 42.44% growth rate (based on the average of the three-, four-, and five-year earnings per share figures).

"Lynch famously used the P/E/Growth ratio to identify growth stocks selling on the cheap. By dividing Credicorp's 19.6 P/E ratio by that growth rate, we get a P/E/G of 0.46, which falls into my Lynch-based model's best-case category (below 0.5).

"Almost untouched by the subprime scandal and the subsequent credit fallout, Canada's banks are strong and their risk of writeoffs are consider by most analysts as minor," notes Genia Turanova and Gregory Dorsey in Leeb's Income Performance Letter.

Here, they look at two favorites in the Canadian banking sector: Toronto-Dominion Bank (NYSE: TD) and Royal Bank of Canada (NYSE: RY).

"Toronto-Dominion and its subsidiaries, collectively known as TD Bank Financial Group, serve more than 14 million customers. The group offers a full range of financial products and services including wholesale banking securities, personal and business banking, wealth management and U.S. personal and commercial banking.

"TD Bank is looking to expand its US presence by acquiring New Jersey-based Commerce Bancorp. After the acquisition is completed, TD's US banking operations will double. As for the hot topic of all financials these days – its subprime exposure – Commerce Bancorp's $16 billion loan portfolio has no subprime exposure.

According to the article: "I would not be averse to a Fed-assisted transaction," Stumpf said, adding that any deal would have to meet the company's traditional acquisition targets and benefit the bank's acquired customers. Wells has built a reputation as a disciplined buyer over the years, focusing on deals that generate at least a 15% internal rate of return and contribute to the bottom line within three years.

"Fixer-uppers don't bother us," he added.

Who wouldn't want to be part of a deal like this? It's become pretty obvious that JP Morgan Chase got an amazing deal to buy Bear Stearns, and now Wells Fargo wants to join the party.

The head of German banking giant Commerzbank (OTC: CRZBY) says that there are more rough seas ahead for the banking industry, particularly in the US. "Bankers did not adequately understand these (mortgage) investments and relied too heavily on high-grade credit ratings from agencies that helped put together the products, then rated them," Klaus-Peter Müller told The New York Times. "This ignorance of the risks extended to the top echelons of the banks."

Not a very pleasant way to talk about your peers, but probably accurate nonetheless.

Commerzbank has already admitted to $1.8 billion in subprime exposure, but Müller fears that US banks are being selective in their disclosures in the hopes that some of the problems will go away. He is also concerned that US banks used the opinions of ratings agencies to make investment decisions instead of doing their own risk management.

In general, Müller is probably right. If his hint about US banks being slow in disclosing problems is true, he may feel that there is another shoe to drop in the form of more big write-offs before the end of the year.

That would put much more pressure on banking stocks.

Douglas A. McIntyre is an editor at 247wallst.com.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Citigroup Inc. (NYSE: C) is the top conservative investment for 2007 from Kelley Wright. The editor of Investment Quality Trends notes, "I know this company has been public relations-challenged, but let's consider the fundamentals.

"First, it's not only undervalued, it's trading almost 71% below its historic undervalued dividend yield of 2.20%. In dollar terms, the stock can appreciate $37 to $89 and still represent excellent historic value!

"Second, the stock has earned an A+ ranking by S&P for earnings and dividend quality; S&P doesn't hand out an A+ easily. The stock has also earned our 'G' designation, which denotes a remarkable 10% annual dividend growth over the past 12 years. And, the stock has a P/E of 11 and is trading right at 2 times book value; numbers Benjamin Graham would like.

"CEO Charles Prince is feeling the heat on unlocking shareholder value. Based on recent management restructuring, it appears they will attempt to boost earnings by cutting costs and trying to squeeze value from every corner of this far-flung enterprise. At the end of the day though, I think Prince will have to do more and the Street will reward those efforts."

To see Kelley's favorite speculative idea for 2007, click here.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

United Overseas Bank Limited (Other OTC: UOVEY) is the top speculative idea for 2007 from Yiannis Mostrous. The global expert and editor of The Silk Road Investor -- and author of a new book by the same name -- explains, "United Overseas is a play in the positive changes taking place in Singapore, which continues to improve its image and attract the affluent from across Asia.

"United Overseas has been steadily improving operations and asset quality while expanding into Thailand and Indonesia.The bank has achieved a healthy mix of non-interest and interest-based income, with non-interest income growing strongly -- always a good thing. Its non-performing loan ratio dropped from 8.5% to 5.6% during the past year.

"Though Singaporean banks have been slow growers for sometime, improvement is visible as the economy enjoys strong growth amid a reflationary environment. As a result, loan growth could easily reach double digits next year. Banking stocks should eventually trade at a premium to the market, especially as return on equity improves through growth.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Sydney, Australia's Macquarie Infrastructure Company Trust (NYSE: MIC) is the top conservative idea for 2007 from Neil George, editor of Personal Finance, while Macquarie Infrastructure Group (OTC: MCQRF), is his top speculative play.

The advisor explains, "Infrastructure is the foundation of our economy. And whether owned by privateers or the public, we need more and better roads, bigger airports, better power and water systems. And there are companies getting the bids over and over again to make it all happen.

"Sydney, Australia might not come to the forefront of your mind when it comes to our nation's infrastructure, but that's where most of the capital is being pooled together to quietly gobble up deal after deal.

"Parent company, Macquarie Bank, first cut its teeth on financing and investing in several projects in its own back yard for years before taking its deal-making skills on the road.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Popular, Inc. (NASDAQ: BPOP) is the top speculative play for 2007 from Kelley Wright. The editor of Investment Quality Trends notes, "We aren't big risk takers. That being said, Popular is an interesting undervalued idea.

"First the numbers: an A+ S&P Earnings and Dividend Quality Ranking; our designation for spectacular annual dividend growth of at least 10% for the last 12 years; a P/E of 12; and the stock is trading at less than 2 times book. The stock's historically undervalued yield is 3.10%. Based on the current dividend of $0.64, that equates to a price of $21, and the stock is trading around $17.50.

"The customer base for Popular is the fastest growing demographic in North America: Hispanics. Popular has found a way to market and deliver banking and other financial products to this group, which has traditionally not trusted financial institutions because of their negative experiences with banks in their country of origin.

"We believe this will not go unnoticed by larger, more established banks in the B of A genre. Even without a buyout by another institution, the stock just needs to climb back to its undervalued area to return approximately 18% before the dividend. While 2006 was a disappointing year for BPOP shareholders, we believe 2007 should be a turnaround year and shareholder patience will be rewarded."

To see Kelly's favorite conservative investment for 2007, click here.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Fundtech Ltd (NASDAQ: FNDT), an information technology firm focused on banks, is the favorite idea for 2007 for conservative investors from Jon Markman. The editor of Strategic Advantage says, "Based in Israel, the small cap company is run primarily out of offices in New Jersey, and is a great play on the globalization of business in general.

"Despite its small size, with a market cap of just $180 million, it sells its cash- and payment-management software and services to dozens of leading U.S. and European banks, and has deep and growing relationships with two of the very largest: Citicorp in New York and HSBC Holdings (HBA) in London.

"The European Central Bank has issued regulations demanding that banks in all European Union countries charge customers the same amount to move money internationally as domestically. Fundtech has a product that addresses these challenges.