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I Never Imagined I'd See the Day These Stocks Got This CheapBy
Monday, August 15, 2011
Right now, bank stocks are as cheap as they've ever been, according to our True Wealth Systems databases.
Take Bank of America, for instance... Right now, shares of Bank of America trade at a price-to-book ratio of 0.36. That is ridiculously cheap.
That means Bank of America is selling for roughly a 64% discount to its liquidation value. (Book value is crude measure. But you get the point: This is an extraordinary moment.)
Looking at history, each time shares of Bank of America bottomed out trading below book value, they soon brought home triple-digit gains. Take a look...
 The other way to size up banks is on earnings... And right now, they're likely as cheap as they'll ever get:
I never imagined I'd see the day when the big banks traded this cheaply. You've got to understand something here... The government wants the economy to grow. So as you've heard, the government is "printing" all this money.
But where is that money?
There's no government official handing it out on street corners... No...
As much as Washington might not like it, the mechanism to push money into the economy is through the banks. So Washington needs to make it easy on the banks. And it has...
Fed Chairman Ben Bernanke has cut short-term interest rates to essentially zero, and he said he'll likely keep them there for two years.
Basically, Bernanke is making it easy for banks to make money...
He's trying to give them an incentive to borrow cheaply and lend that money into the economy. With zero-percent interest rates, Bernanke is giving banks free profits (or as close to free as they'll ever get).
So as a bank investor, we have a perfect storm of opportunity here... Bank stocks are the cheapest they've ever been... AND banks can borrow money for next to nothing and turn that into easy profits.
Meanwhile, investors have given up on bank stocks. They're hated... nobody wants them.
When you hold bank stocks up to my True Wealth "prism" of cheap, hated, and in an uptrend, we have two of the three things we look for in an investment (cheap and hated). And they're just about as good as they can get.
The problem is in the uptrend... we don't have it. Bank stocks have underperformed the overall stock market, to say the least. Bank of America is down 25% in two weeks. Stocks in general are down about 9% over that time.
Fortunately, as investors, we don't have to swing at every pitch that comes across the plate. We can wait – for a long time if necessary – for the right pitch... the one we can hit out of the park.
The basic story on bank stocks, which I showed you today, is true. It's an extraordinary moment. But we don't need to hurry to get in. The world is not interested in bank stocks yet. Let's wait for our uptrend.
The uptrend could start next week... next month... or next year. But it's not here yet.
When the uptrend returns, it's time to get in. Bank shares are so cheap... and Bernanke is making it so easy for them to succeed... that you could make hundreds of percent returns here... once the time is right.
We're not there yet. But it will be a great opportunity once it arrives.
Good investing,
Steve
Further Reading:
"You might be surprised to hear me say this," Steve writes… "But out of the three things in our 'prism,' the simple existing trend is the most important – the most consistently profitable." Hear Steve's argument for not fighting the trend here: It's Ugly... But Stocks Are Cheap! What to Do?
Market NotesNEW HIGHS OF NOTE LAST WEEK
Gold
First Cash Financial (FCFS)... pawn shops
CF Industries (CF)... fertilizer
Yamana Gold (AUY)... gold mining
NEW LOWS OF NOTE LAST WEEK
Bank of America (BAC)... banking
Citigroup (C)... banking
Wells Fargo (WFC)... banking
Banco Santander (STD)... European bank
Deutsche Bank (DB)... European bank
Credit Suisse (CS)... European bank
Barclays (BCS)... European bank
Goldman Sachs (GS)... investment bank
Boeing (BA)... aerospace
FedEx (FDX)... shipping
United Parcel (UPS)... shipping
Walt Disney (DIS)... entertainment & media
Carnival (CCL)... cruise lines
Arcelor Mittal (MT)... world's largest steel producer
Beazer Homes (BZH)... homebuilder
Ryland Group (RYL)... homebuilder
DR Horton (DHI)... homebuilder
Cemex (CX)... North America's largest cement producer
Ultra Petroleum (UPL)... oil & gas
Wal-Mart (WMT)... world's largest retailer
Vulcan Materials (VMC)... construction aggregates
Posco (PKX)... Korean steel giant
Cameco (CCJ)... uranium miner
Gannett (GCI)... USA Today publisher
Legg Mason (LM)... asset manager
Loews (L)... investment company
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