Traders' views - Spread betting

Time to get back into financials?

By , 13 Jan 2012

The spread betting guru believes now is the time to get back in US financials – yes, he really does mean it...

For someone that has made more money shorting banks than ever buying them it does not come naturally to say "buy US financials", but everything I look at points to the Financials Sector ETF (XLF) doing better in 2012. The XLF gives you a broad exposure to the financial sector, as you can see from its factsheet.

Some of the major holdings Include Wells Fargo, Berkshire Hathaway (which owns a large stake in Wells), Citigroup, JP Morgan, Goldman Sachs and Bank of America.

Anyone that bought the XLF in 2011 lost over 19 per cent, even with a year-end comeback, but so far in 2012 XLF is up 6 per cent and I see a better trend for US listed financials in the future.

Everyone hates financials, but...

Just before Christmas many experts who ironically work for financial companies came out with their 2012 predictions that the most loathed sector was and still is financials. When sentiment is so negative you have to take note and buying or spread betting the XLF gives you a way to get exposure.

If I had to pick one financial then I would say Citigroup (NYSE:C) is the one with 'least fleas', as Gordon Gecko said in the Wall Street movie. Citigroup has a good balance sheet, paid off its Tarp loans and has re-engineered itself under CEO Vikram Pandit the last few years.

With the shares trading at the current $28 a share level of which $9 a share is cash on the balance sheet, a p/e of 8.5 coming down to 7, and even the fact that it is paying a small dividend that just a few years ago would have been unheard of, Citigroup is finally offering some value.

Citigroup also has good international exposure with a strong presence in the Far East, Africa and Latin America which offers good growth to offset European problems. The credit card business is also doing better with a bad debts and delinquency rates coming down in 2011 and this trend should continue in 2012 which will add to profits.

The stock dropped 50 per cent in 2011 and caused many hedged funds to have a terrible year but I am talking about holding your nose and buying a small amount at these levels and not 2011 prices and looking for a year end of level of $39. Next earnings are out 17 January 2012.

 

 

Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.

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