Investing today in the US financial sector – is it worth?

In a previous article was already pointing at the high risk associated with the investments in the banking and financial services sector shares. We came up with specific data and information showing that huge losses from the subprime/real estate portfolios write downs (US$ 7 billion only in 2007) and we showed that this sector has become very risky because of its lack of transparency (despite applying the Basel 2 rules, or maybe because of them!).

However, risky means higher profit (or loss!) opportunities for the investors, so some of you might be interested in going ahead and speculate the current situation. What should you do?

Well, I did some analysis for your benefit (am I not a nice guy?).

What I did was to take the top 10 banks and financial institutions from the US, and plug their financial data in a very intuitive model. I took their share price of today, their 52 weeks high and 52 weeks low share prices and I did some comparisons. In most of the cases, I compared their current share price (as of the closing of 1st of July) with the spread between the 52 weeks lows and highs, in order to get a feeling of where the prices are now in those intervals. Yes, I know, this is called technical analysis and you could do it by yourself, yet it sounds interesting, right?

The summarising results look like this:

Rank US rank 2008 US rank 2007 Name Share price $ (avg 2007) Share price July 1st Symbol 52 weeks high 52 weeks low Distance current share price from min (%)
1 10 6 Bank of America 37,9 23,81 BAC. N 52,96 22,44 4,5%
2 12 14 JP Morgan Chase 43 34,2 JPM.N 50,48 33,96 1,5%
3 22 4 Citigroup 21,4 17,13 C.N 52,97 16,25 2,4%
4 28 18 Wells Fargo 29,1 24,12 WFC.N 37,99 23,04 7,2%
5 34 31 Goldman Sachs 165,4 175,33 GS.N 250,7 140,27 31,7%
6 45 50 U.S. Bancorp 32,4 28,4 USB.N 35,25 27,31 13,7%
7 49 24 Wachovia 27 16,13 WB.N 53,1 14,7 3,7%
8 51 46 American Express 43,7 40,02 AXP.N 65,89 37,81 7,9%
9 52 32 Morgan Stanley 45,7 36,6 MS.N 73,64 33,56 7,6%
10 56 102 Bank of New York Mellon 41,7 38,52 BK.N 50,26 36,92 12,0%

What you can notice from this table is that most of the shares are very close to their 52 weeks low, which means that investors are very prudent in buying them for the moment. For good reasons I think, since they just started to announce a new wave of write-downs for the second quarter. Hoever, looking at their yesterday’s prices, most of the shares already started to slowly climb and most of the reccomendations from Reuters were to hold these shares…

Of course, for any decent US-based investments portfolio, the shares of the financial sector should occupy some part of it. If you do not have them, this could be the time to buy them. But beware of the risks – as mentioned above, the losses are not over yet!

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