Not really banks, but “sort of” banks, that’s what I’m going to write to you about today — and I’ve got a couple interesting ones that I own to profile for you today as they share the “Idea of the Month” spotlight.
Banks in general are in everyone’s good graces again — the stocks are pretty cheap, the widely-held perception is that a gradual rise in interest rates will bring about a new income boom for them again, and the “big” banking stocks have been rising. My favorite way to play that, if you’re interested, is still the TARP Warrants — those are not quite as dramatically exciting as they were a couple years ago when we first bought them, when they had 5+ years to go before expiration, but they’re still a great way to get leverage on big banks without really having to pay any premium for that leverage. Remember that leverage works both ways — you can in some ways get free options-like leverage with these for a long period of time, but you also do have the downside leverage risk… if the underlying stock drops by 30%, the warrant could lose 100% of its value.
The TARP Warrants I still own are on JP Morgan (JPW-WT is the Yahoo Finance symbol) and PNC Financial (PNC-WT), and PNC-WT would be my top pick for safety and high potential return still. I also have Boston Private Financial Holdings warrants (BPHFW), but that’s a private bank and asset management company, it’s not as cheap as the big banks, and it’s far riskier and quite illiquid — I’m more likely to sell BPFHW than to buy more at this point. And maybe the most interesting one that I don’t own is Bank of America (BAC-WTA), just because everyone still hates Bank of America and it has yet to really get out of its own way — I haven’t bitten on that, since the risk of the stock just stagnating even if the banking economy improves seems substantial to me, but I’ve seen more chatter about it recently.
I’ve written about most of this before, but here are the quick details on those biggies:
JPM-WT has a strike price of $42.42 (a few cents lower, actually, with dividend adjustments… adjusts for quarterly dividends over $0.38 per share) and an expiration date of October 28, 2018. ...