Bank Stocks

Brokerage and Bank Stocks stocks account for about 20% of the S&P 500. The recent subprime debacle has caused our largest financial institutions to plummet to 52 week lows with no definite end in sight. An alarming scenario to say the least. These institutions employ hundreds of thousands of people in the USA and contribute heavily to economic growth.

Banking Institutions such as Citigroup, Bank of America, Wachovia and many others have fallen like a rock in recent months. Goldman Sachs recently issued a "sell" rating on Citigroup and warned that the banking giant would have to write off $15 Billion in losses in the next two quarters.

In the Savings & Loan crisis of 1989-1990, where mortgage lenders had also made a large number of ill-advised loans, Bank Stocks dropped by almost 50%, whereas the S&P 500 fell only 20% over the same time period.

The good news is, these stocks will have lower P/E Ratios and higher dividend yields once they hit bottom. A further decline in price will provide intelligent investors the opportunity for larger appreciation in the near future. More importantly, problems that are now hidden should soon be revealed.

Investing in financial institutions in todays market should be done in one of two ways. First, purchase stocks when they are low, with the understanding that you may have to dollar cost average if they fall further. Or, you may wait until the sector has obviously bottomed and purchase after the recovery has began. You will lose some potential profits by following this strategy, but you will also avoid most potential losses.

It is always advisable to invest in the strongest stocks. The higher quality banks will offer the best return with the least amount of risk.

I have pinpointed some financial institutions that are poised to give conservative investors double digit returns. These particular banks appear to have less exposure to the subprimemarket.

Bank Stock Recommendations

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