Financial Stocks That Have Avoided the Credit Crunch

As regular readers are certainly aware, the spread between the interest rate on high yield corporate bonds and comparable treasuries has risen sharply since June 1st.  While most financial stocks have sold off significantly as a result of the turmoil in the credit markets, there are some stocks in the sector that have actually done very well.  Below we list the 21 financial stocks in the Russell 3000 that are up more than 25% since high yield spreads bottomed on June 1st.

 

While one can look at a lot of these names and rationalize a reason for their outperformance during the current period, one of the lesser known names on the list benefits directly from heightened risk in the credit markets. 

GFI Group (GFIG) specializes in what are known as credit default swaps.  For those who are unfamiliar with the term, a credit default swap is a derivative contract where one party sells another an insurance policy against a 'credit event' (debt default, missed coupon payment, etc.) occurring.  As the chart below illustrates, GFIG has directly benefited from rising levels of risk in the credit markets.

Comments

[Pj568:]

Surprise! Surprise! There are no holders of mortgage investments or lenders here.

2007 Dec 10 10:12 AM

[petecoves:]

Instead of riding the wave up like many investors do, and then end up losing a significant amount of money whe the stock collapses. You should be giving investors reason for pause. If this was the best consumer market in te history of Masterercard, it still overvalued at current levels.

1) Price to sales 7 S&P 1.5
2)PE 33
3)price to cash flow 31
4)Peg Ratio 2.01
5)RSI 75 anything over 70 is considered overbought.
6) Legislative risk
7) Sept 9,08 Trial with AXP -They could be liable for 3 Billion dollars
8) EU commission ruling on interchange fees.

But no, Just jump on the bandwagon like everyone did at the top of the Homebuilders & financials.

2007 Dec 11 08:08 AM

[petecoves:]

FXE in downtrend will hurt earnings in future - Mastercard 10Q

Impact of Foreign Currency Rates

Our operations are impacted by changes in foreign currency exchange rates. In most regions, except Europe, assessments are calculated based on local currency volume converted to U.S. dollar volume using average exchange rates for the related assessment period. In Europe, the non-euro volumes are converted to the euro. As a result, assessment revenues are impacted by the overall strengthening or weakening of the U.S. dollar or euro compared to the foreign currencies of the related local volumes in each period. In the three and nine months ended September 30, 2007, the U.S. dollar weakened as evidenced by a 16.6% and 17.4%, respectively, increase in gross dollar volume ("GDV") on a U.S. dollar converted basis exceeding local currency GDV growth of 12.8% and 14.1%, respectively, compared to the same periods in the prior year.

We are especially impacted by the movements of the euro relative to the U.S. dollar since the functional currency of MasterCard Europe, our principal European operating subsidiary, is the euro. The strengthening or devaluation of the U.S. dollar against the euro impacts the translation of MasterCard Europe's operating results into U.S. dollar amounts

2007 Dec 11 09:51 PM