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Bank Stocks: This Sector Is On SALE!

Posted December 29, 2007

Karim Rahemtulla finds safe opportunities in the “risky” financial sector.  What others see as a crisis he sees simply “as a crisis of confidence.” 

Baltimore – (TFN): The following intervie is based on Karim Rahemtulla’s appearance this month on TFN Smart Investing Market Insights with Krista Das.  (Watch the financial video.)

Krista Das: Welcome to Smart Investing  Market Insights on todaysfinancialnews.com.  I’m Krista Das.  It seems these days that the stock market bears nothing but frustrated sellers.  Keep in mind however that there is always a buyer for every seller.  That’s why today we’re going to do a little bargain hunting in a surprising sector.  Karim Rahemtulla is one of the country’s foremost specialists in options trading and serves as the investment director of Mt. Vernon Research.  Karim, welcome to the program.

Karim Rahemtulla: Thank you, Krista.  It’s good to be here.

Krista Das: Okay…  I can’t wait any longer.  What crash sector are you claiming is bursting with bargains?

Karim Rahemtulla: Well, the financial sector is really the focus of where we’re looking right now because it’s been beaten down badly but there’s a lot more to it.

Krista Das: Really, the financial sector?  That’s interesting.  What about the wholesale credit contraction, the housing crisis and soaring oil and gold prices?  I would think all of these factors would make this sector dangerous.

Karim Rahemtulla: It’s extremely dangerous and that’s what makes it more exciting than any other sector out there because you have to take a step back and ask yourself when you have a crisis of this magnitude, is it a real crisis or is it a crisis of confidence?  If you ask yourself questions like is Citicorps, Bank of America, Wachovia, are these financial institutions gonna be allowed to fail?  Are the top U.S. banks going out of business?  The answer is no, and so you start looking further into the sector and then there are other factors, which allow you to be more confident about stepping in at this point.

Tired of reading?  Watch the financial video….

Krista Das: Now where exactly in the financial sector do good buying opportunities exist?

Karim Rahemtulla: The part of the sector that I’m looking at are some of the top U.S. banks.  These are banks that may have exposure to subprime, even though subprime is a very small part of their business, but these are banks that are paying you very, very small dividends and it’s not just my word that these things are gonna do well in the future.  I’m following some special indicators that allow me to believe that this is the time to be buying into these sectors or into these companies too.

Krista Das: Okay.  Now is there any evidence that the top executives of these financial companies are snapping up shares?  I’m only asking because it seems like a good indicator that a stock is under valued.

Karim Rahemtulla: It is and one of the things that we look at and one of the things that I look at is insider buying especially in times of turmoil because you can be fooled.  I’ve seen companies before where you have a lot of insider buying going on and the stock goes even lower but in a certain case like right now one of the companies that I’m following that we’re recommending is Wachovia Bank. It’s a very large bank.  It’s paying a high dividend and in fact the high clear dividend during this crisis, and they’re upwards of 6% right now.

But what’s more interesting is if you look into the insider buying trend at Wachovia, and this is something that hasn’t happened for years at that bank, over the last four weeks we’ve had six directors buying over 50,000 shares each on the open market.  You’ve had the CEO buying over 100,000 shares and then you had another director buying 500,000 shares, and this is a $40,000 stock so this is not a cheap transaction.  You’re talking about $30 million plus in total buying.

Krista Das: Wow.  Well Karim, thanks for the recommendation.  It’s always nice to hear about opportunity in such an unpredictable market.

Karim Rahemtulla: Any time, Krista.

Krista Das: That’s all for today’s show.  If you would like to learn more about specific plays from Karim, please check out his investment research service, The Xcelerated Profits Report.  Until next time, here’s to great profits from Smart Investing.

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