Some big percentage gains from financials this week. . . moving in spite of market direction. I'm sure many of you picked up a bank or two on the bounce. The interesting thing about the big banks is this. . . if the Federal Government is guaranteeing them from going out of business, then what exactly is the downside risk? Citigroup and Bank of America have been leading this charge. Since we (citizens of America) already own like 40% of Citigroup, then why would we allow them to fail. And if not, then the upside potential outweighs the downside risk.
Will we allow GM or F to fail? So far, the answer is no. So then, once more, the upside potential (if you believe the auto industry is coming back) outweighs the downside risk. Banks are different though. C and BAC have said they are making money again. That's why they have been bouncing so sharply.
Another TARP bounce play story is Fifth Third Bank. But instead of the common, take a good look at the preferred FITBP (series g). Around $28. Just announced a $2.125 per share dividend ex-3/31, paid late April. Now, somebody tell me how this is not a no brainer way to make 10% on your investment in about one month's time. . . .with about 8-9% dividend payout, and the added bonus of the share price upside potential, should financials make a lasting recovery. . . and the downside risk is that they could possibly need more federal bailout money, (though that is not being projected at this time, as the companies are profitable).. . and 52 week low of about $21. Balance sheet of this one looked weak last quarter, due to their buying up a bank down in Florida. . . otherwise, things are fairly strong, in my opinion.
There are other such dividend/bounce plays out there, if you take the time to look around and do your DD. But the key element is the removal of downside risk by the federal government bailout monies. This is a new element that causes bargains on certain beaten downs. The bailouts are proving to be quite effective ways of adding market stability. Eventually, this leads back to investor confidence (however temporary). . .as we have now seen for the better part of a week thus far.
Best wishes,
Rande Is
PS> Yes, I partook in most of these last week. . . since the percentages of the bounces are hard to resist. Just look at C alone. . . quite bouyant for having a few billion shares in the float. Find the sharp dividend/beaten down bounce play stories, akin to FITBP. |
