Nov
5
It Is Difficult to be a Bank
November 5, 2007 | 1 Comment
Banks have given me headaches this year. Good thing they have dividends to soothe the pain. I still believe it is better to Buy the Bank than to Deposit at The Bank. This is an opportunity to buy some banks. They have Yields, and yields support the price even on these extreme downturns.
Still, it is difficult to forget that Citibank ( C ) and Merill Lynch (MER) trashed the bank industry in the recent days. This morning Citibank fires its CEO and the interim replacement doesn’t even want the job. Citibank is one of those companies I would not be buying in a year, at least. (And Merill Lynch doesn’t have a good enough dividend to make me want to buy that bank). Thanks god I dumped 800 shares of Citibank ( C ) a few months ago. Still, my 1000 shares of ACAS, 1000 of BAC, and 1000 of WB are feeling the pain – friends usually grieve together, I guess.
A country can’t let its banking industry collapse – otherwise we will all be in deep doo-doo. The question is when will the Fed really help the banking industry? I still like banks, and this is my current opinion on the banking stocks I track:
- Washington Mutual (WM) – BUY. Pointed out by a reader. The stock have had terrible performance this year. I am starting a BUY recommendation on it! (At the 23-24 range) 1 year target price of … What the heck! Even if it only raises to 25% it will still be about a 10% return! According to analysts it is recovering next year. It should have an attractive Price to Earnings Growth ratio of 1.09 with a growth above industry standards (19%). Forward looking P/E of 7.6 and a dividend yield of 8.7% at current stock price of 23.81. Barring any drops in dividend payouts or further impact by the mortgage exposure I may load up a few shares by the end of the year. I may trade my Citibank ( C ) dog for this one!
- Bank of America (BAC) – HOLD – next week. Citibank is bleeding. Bank of America has bleed also, but not as much as Citibank. Guess who is probably going to get the business that Citibank can’t get due to its restructuration and lack of management: BAC. Don’t buy this week because it will suffer from the Citibank chaos. I will not be loading more of this stock for a while, but I will be holding to it. I like its 5.6% dividend at $45/share. Future looking P/E of 10. PEG of 1.46 – above industry standard. Thats the reason I do not buy more.
- Wachovia Bank (WB) – BUY – late this week or next week. Will also suffer from Citibank chaos. But I like its 5.9% dividend yield, its forward looking P/E of less than 10, and its PEG of 1.24, just a tad bit below industry standard. I will not buy more than the 1,000 long term shares I have of it, but just because I have too many and I am very loaded on banks.
- Citibank ( C ) – SELL – Holding to my 200 shares for a while… Selling at a loss before the end of the year to limit my tax liability. Don’t want to think of them for a while.
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There is no way the Fed and the Government let any of the big banks fail. If even one goes down it could induce a panic that could lead to a castosrophe of epic proportions…think 1929 bad…a run on banks would ensue and the US would be headed for a path of implosion. The Fed will continue to ease and pump liquidity into the markets. When the housing and mortgage industry stablizes in the next two years this could be one of the best opportunites you will see in this sector in your lifetime. P/E ratios and dividend yields are brinking on outrageous value now…if they continue a downward slide, even better!
That being said WM is a great buy at these levels. But I would advise easing into the position over the next 12-18 months…