Stocks and Sectors

David Hunkar submits:

The following stocks in the financial services sector pay dividends in excess of 8%:

Disclosure: None

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Vitaliy N. Katsenelson, CFA submits:

I have tremendous respect for Mr. Buffett. But every word that comes out of his mouth should not be looked upon as prophecy, or the gospel truth. I get a feeling that Buffett has been canonized into a value investor saint – investors and the media worship the ground he walks on and the air he breathes. The media are unable to get any critical quotes from his investors, and nobody wants to be caught disagreeing with the Oracle of Omaha – after all he’s been right more often than wrong – and so we only get positive puff pieces. On the rare occasion when Berkshire Hathaway (BRK.A) stock declines more than the market, you see an article asserting that “Buffett has lost his magic touch,” but these articles are usually followed by stellar performance by Berkshire. Though Buffett deserves admiration – he is brilliant and likable and he has achieved incredible returns for his investors over the last half-century – he should not be canonized, and not everything he does or says is the ultimate truth.

Most investors agree with Buffett’s criticism of Kraft’s (KFT) decision to buy a fairly valued (or overvalued) Cadbury at 22 times earnings (over the past 15 years, its average price-to-earnings ratio has been 21), using Kraft’s undervalued stock. Cadbury runs a global, noncyclical confectionary business that, if properly managed, should have a very high return on capital. Buffett, a shareholder of Kraft, was very public about his dismay – he said he felt poorer when Cadbury accepted Kraft’s increased offer.

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Mark Riddix submits:

The FDIC shut down 5 more banks on Friday. First Regional Bank of LA, First National Bank of Georgia, Community Bank & Trust , Florida Community Bank, Marshall Bank, and American Marine Bank were all closed by the FDIC.

Since January of 2008, 155 banks have been shut down and there are more to come. One hundred and forty failed in 2008 and 15 so far this year. This may seem like a lot but it really isn’t that big a number compared to the 534 banks that failed in 1989. This just highlights that the financial crisis is not yet over for many small and midsized banks. Foreclosures and loan defaults are crippling the balance sheet of smaller banks and they are unable to find adequate capital to stay afloat.

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David Hunkar submits:

The following Savings & Loan association banks (S&L) accept savings deposits and make home and other loans. S&Ls must have 65% of their lending in mortgage and consumer loans. Due to this, they are highly vulnerable to the housing market.

S&Ls with more than 4% dividend yields are shown below:

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Casey B. Mulligan submits:

With the intentions of preventing foreclosures and strengthening the financial system, the FDIC and the U.S. Treasury have created guidelines for modifying mortgages. They require that the guidelines be followed for a large class of mortgages. The guidelines include an income share target (for housing expenditures), a NPV test, and voluntary participation by borrowers. This paper shows how actual modifications that do little to reduce principal, are still outnumbered by foreclosures and add to borrower uncertainty- that they might be the direct result of incentives created by those very guidelines.

Through their income share target and “NPV test,” the federal modification programs have manufactured a tradeoff between the number of foreclosures prevented in the short term and the durability of those foreclosure prevention efforts. That’s because they make it impossible to both write down principal and offer modification to a wide range of borrowers. Another result of this tradeoff is to reduce collections, increase foreclosures and their costs, and reduce efficiency as compared to alternative means-tested mortgage modification rules.

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IPE at UNC submits:

by Kindred Winecoff

A couple of weeks ago I argued that having "too big to fail" banks might actually be a good thing, or at least that the alternatives might be worse. Here’s a few more reasons why this makes sense. First, because without large banks it’s impossible to deal with many bank failures. How? Well, if you cap bank size, then who’s going to buy the banks that fail?

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Felix Salmon submits:

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Hickey and Walters (Bespoke) submit:

During the financial crisis, we created an index that tracks credit default swap prices for the major banks and brokers across the world. This essentially measures default risk for the financial sector. After declining significantly for the past 9 months, the index has spiked in recent weeks to its highest level since last September. As shown below (click to enlarge), the downtrend line in the index has also been broken on the run-up as well. In just a couple weeks, the fear has picked up quite a bit.

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Ockham Research submits:

“The auto repair company that I have been mentioning for a long time on this show, Monro Muffler, MNRO. The largest pure play, under-car service chain company in America, with 780 locations. This is a twice-blessed stock that’s benefited from the closing of all those Chrysler and GM dealerships, less competition, and the resurgence in the auto industry at the same time. Plus, Monro does not need a strong China and it isn’t on the radar screen of our president’s neer-do-well list like the banks.” — CNBC’s Mad Money 1/28/2010

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Ockham Research submits:

On Wednesday, we wrote that investors should stay far away from Toyota Motor (TM) following their unprecedented recall of 8 popular models (Toyota’s Stuck Accelerators Cause Investors to Slam on the Brakes). Initial estimates predicted the recall could cost the company as much as $500 million each week until the problem is fixed, but the long term damage to the proud brand’s reputation is much more difficult to assess. Edmunds.com is a leading authority in the auto market and has estimated the Japanese automaker’s sales results for the month of January to show a decline of 12% from a year ago.

That means the first serious nuts-and-bolts numbers from this debacle will come out Tuesday, when Toyota reports its monthly North American sales figures.

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