Brian Gorban's  Instablog

Brian Gorban
Send Message
Some of our most popular articles to give an idea on what we write about: More
My blog:
Financial blog/advice
  • Using ETF's to Take advantage of depressed Financial Stocks 0 comments
    Sep 20, 2011 11:52 AM | about stocks: C, BAC, SAN, BCS, XLF, UYG, FAS, BRK.A, BRK.B, JPM, GS

    As financial stocks continue to move lower, one has to believe that the expectations are very low and that the stocks are looking cheap.  However, one would be hard-pressed to identify which one individually is cheap due to their opaque financial statements and unknown exposure to the deteriorating European Union and residential real estate market.  Citigroup looks ridiculously cheap trading at 8.5x price/earnings, 1.3x price/sales, and .45x price/book, but then when one looks deeper, Bank of America on a valuation basis looks real cheap as well trading under 1x price/sales and .35x price/book.  Start moving internationally and one will see quality banks such as Banco Santander and Barclays there selling at real cheap levels as well, which I wrote about here recently (  However, as I wrote recently here regarding Bank of America ( and surely for other financial stocks, some of these companies may be trading at depressed levels for good reason as the risks being reported are very real and will cause material damage when the dust settles.  So, I've come to the reality that I can't pick specifically which financials have the most value, but I see that the financial sector as a whole is on sale when I look at the metrics on the broad-based Russell 1000 Financial Services Index.  There we see that the average financial company is trading at a cheap 1x price/book, approximately 20% lower the 10-year average, and currently have a respectable 2.1% dividend yield .  Therefore, I see why risk picking individual stocks and just look towards an Exchange Traded Fund (NYSEMKT:ETF) as an investment vehicle.

    For those who don't know, an ETF allows an investor to invest real cheaply into a fund that mirrors an exchange, sector, or some other focus of the particular fund.  A very popular ETF, for example, is the SPDR S&P 500 which allows investors to buy into a fund that corresponds to the well-known S&P 500 index.  The advantages is its high liquidity as close to 285 million shares trade daily on average and its very low expense fee of .1% among other factors.  In this case, since I'm focused specifically on financials, I'd be better served in buying the Financial Select Sector SPDR Fund (NYSEARCA:XLF) as it's holdings are comprised of a basket of financials including Wells Fargo, JP Morgan Chase, Citigroup, Goldman Sachs, Bank of America, and others.  To buy these stocks individually would be very hard to manage, cost a lot in terms of commission, and impractical.  I feel the still low .2% expense fee is worth the service.  For the more aggressive trader, the Proshares Ultra Financial offers twice the performance of the financial sector and the most aggressive can look at three times the performance with the Direxion Daily Financial Bull 3x shares.  I must state a caveat that there is no guarantee that these ETF's will meet their stated objectives as they have daily resets to try and match their respective objective and these are strictly intended for a holding period no more than one day.  I'm staying away from those for now as the sector is already volatile enough for me, but I think they're worth a look if down the line financials move even lower and present an even stronger buying opportunity. 

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XLF over the next 72 hours.

    Additional disclosure: These descriptions of the ETF's are straight from their respective websites and the straight long XLF is a common tool for the investor. The leveraged ETF's are more suitable for short-term traders, so I made that adjustment.
    Stocks: C, BAC, SAN, BCS, XLF, UYG, FAS, BRK.A, BRK.B, JPM, GS
Back To Brian Gorban's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


  • Is There Money Still To Be Made In 3D Printing In 2014?
    Jan 13, 2014
  • What's your top stock for 2014?
    Jan 7, 2014
  • Happy 2014 everyone!
    Jan 2, 2014
More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.