Tuesday, January 29, 2008

Two "Safe" Financials Free of the Subprime Contagion

The United States stock markets have been rocked by the Subprime Contagion. The Fed is aggressively cutting rates, there is a lot of Recession talk, and the US markets have fallen hard, heading towards Bear Market Territory.

After last weeks Capitulation Bottom, many pundits are starting to discuss whether it is time to buy beaten down financials. However, this is a risky and aggressive strategy.

For those who are less aggressive, is there a way to invest in Financials with less risk?

There are at least two financial stocks out there that either have no subprime exposure or actually benefit from the subprime problem. These two stocks are even near their 52 week high despite the large US stock market correction.

1. BlackRock (BLK)

Blackrock is a $28 Billion investment manager and also provides risk management and advisory services. CEO and Founder Larry Fink sounded upbeat during their January 2008 conference call. Blackrock announced profits jumped 90% to $322 million at a time when many other companies have blamed subprime for their bad earnings.

Blackrock not only avoided the subprime problem, they profited from it. Experts at Risk management, back in 2005, according to a Business Week Article, Blackrock foresaw the subprime meltdown and got out early, and made the firm's hedge funds make bets against real estate.

Now, with billions of dollars to invest, Blackrock can bottom feed, pick among the rubble, and even acquire companies that their competitors hedge funds are trying to unload.

Blackrock, 49.8% of which is owned by Merrill Lynch, looks like a good financial company worth looking into. The stock is near its 52 week high.

2. Hudson City Bancorp (HCBK)

Hudson City Bancorp is a $8 Billion regional bank serving the New York, New Jersey, and Connecticut areas. Fourth quarter profit rose 12% despite the financial meltdown and housing crisis.

Hudson City Bancorp has remained unscathed because of Hudson City's strict lending standards. According to Forbes magazine, which named Hudson City the Best Managed Bank of 2007, Hudson City ignored the call of exotic loans to people with subpar credit. Hudson City has been doing very well, and CEO of Hudson City, Ronald Hermance Jr., says HCBK is running on all cylinders.

Hudson City (HCBK) also benefits from speculation that foreign companies, such as Canadian banks might take them over. As the Canada based TD Bank buyout of Philadelphia area regional bank Commerce Bank ($8.5 Billion) in 2007 illustrates, once regional banks grow to a certain heft, they become major takeover candidates. The weak US Dollar also helps as foreign companies can get more "bang for their buck."

Hudson City Bank is near its 52 week high and like Blackrock, is definitely a good investment candidate even in these very trying times.

No comments: