Bankruptcies, bailouts and bad loans have rocked the financial industry. For investors, this bad news may provide good opportunities to buy low. Let’s take a look at some companies that look to be in the best shape to survive the current crisis and profit once it’s passed.
CITIGROUP INC. (C) A discussion of the current financial crisis must include Citigroup. With over 200 million customer accounts in more than 100 countries, Citigroup provides consumers, corporations, governments, and institutions with a broad range of financial services.
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Citigroup stock has plummeted sharply over the past year, reaching a 15-year low in mid November. The federal government, fearing what a Citi collapse would do to the financial markets, saved the company with a $25 billion dollar bailout soon thereafter. Although Citi stock rose sharply after news of the bailout, it’s still trading near its 52-week low. Its low price combined with government assurances makes Citigroup an attractive long-term stock for value investors.
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WELLS FARGO (WFC) Despite being one of the top sub prime lenders in 2006 and having its business highly concentrated in 3 of the 4 areas hardest hit by the housing downturn, Wells Fargo has weathered the storm better than most, having sold away their bad loans quickly.
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In the summer of 2008, Wells Fargo reported record revenues, claiming to have “negligible exposure to many of the problem areas that resulted in significant costs and write-downs at other large financial institutions.” A closer look, however, shows they have a considerable amount of risky loans, which may indicate future write-downs. Its acquisition of Wachovia, however, indicates Wells Fargo is confident going forward and positioned for huge profits once the crisis has passed.
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JP MORGAN CHASE (JPM) JP Morgan Chase, another financial institution that has fared better than its competition, has $2.3 trillion dollars in assets and operates in over 60 countries. JP Morgan’s acquisition of Washington Mutual sent a positive message of long-term viability to the financial world.
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As with other financial institutions, JP Morgan stock has benefited from the government’s willingness to make sure the financial sector survives. Despite a recent surge in share price, JP Morgan stock remains well off its highs of a year ago. With less exposure to risky loans than its competitors Wells Fargo and Citigroup, and an aggressive approach to helping families facing foreclosure, JP Morgan Chase has remained stable, despite unprecedented turmoil in the financial sector.
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BARCLAYS PLC (BCS) For investors who like a lot of risk with their reward may want to look at Barclays. The London based bank remains floundering near its 52-week low, not reaping the benefits of the U.S. Government’s Citi bailout. This means one of two things: either investors are getting a reputable institution at a rock bottom price or they’re getting the next institution to hit rock bottom.
Barclays’s history of innovation and creativity lead some to believe the bank will figure a way out of the current financial mess. Barclays introduced the world’s first cash machine in 1967, introduced Internet banking to England, has been a major player in Exchange Traded Funds, and won the Excellence in Emissions Trading at the Energy Business Awards as recently as 2005. If Barclays stock survives the current onslaught, shareholders may be looking at historic gains when the crisis ends.
Investors considering investing in financial companies might consider hedging the positions with stock options. Investors can use stock options as “stock insurance“, put options for example can protect a stock investment from a downside move. Investors can also limit risk and participate in price appreciation with a married put stock option strategy.
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