Buy Financials

The pundits go back and forth. Sure, they admit, financials are cheap...but what if things just keep getting worse? The fact of the matter is, things truly might get worse. Stagflation has gripped the market. It won't crash into a full blown recession, and it refuses to gain any discernable ground. The S&P sits at 1260.31, in August of 2000 it was at 1517.68. Where do we go from here? Is America's Roman Empire over? Perhaps, but I say buy financials while they're down.

Take Bank of America (BAC). 9 months ago, BAC was riding high, at $50+ per share, and paying a healthy 5% dividend yield. Enter the liquidity crisis, which one month ago rendered the big bank at a paltry $18 per share. It's dividend remained unmoved at 2.56 per share (which at its high was a robust 14% yield). Stock pundits screamed that BAC would cut its dividend to raise capital. Some guaranteed it. BAC didn't. They didn't last quarter when everyone claimed they would. They didn't cut it in the most recent quarter, when it was predicted again. CEO Ken Lewis says they have no plans to do so. BAC currently sits at 33.33 per share, still paying 2.56 per share (7.8%).

I can't guarantee that they won't cut that dividend in the future, but they haven't cut it yet. If you can get in at around $30/share, and be guaranteed that return around 8%, you have a healthy investment. Plus, the stock price is eventually going to return to its normal levels, and its normal yield. Maybe not today, maybe not tomorrow, but someday. Buy it while it's down and feel like a big dog a few years from now. Philip Fisher once said that his favorite holding period for a stock was forever. If you buy the right one, that's good advice.

Not all financials are created equal. But besides banks, like Wells Fargo, Wachovia, and BAC, investment banks are also looking attractive. Lehman Brothers is risky to touch, but if it doesn't go under you could make a big profit there. Goldman Sachs is the gold standard, Morgan Stanley and JP Morgan are attractively priced. Do your homework, pick the best financial you can find - and buy it!