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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 14531  
Subject: Just a quick thought on financials Date: 8/28/2008 2:18 PM
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A year into the credit crunch, the market seems to be a little bit more
discerning about financials than at an earlier stage.
The weakest have fallen a whole lot, and the strongest much less.
Lehman is down to #43 on the list, for example, and Freddie Mac is now #80.

One interesting side effect of this is that the cap-weighted financials
indices, such as one might purchase as XLF, now have a much better
tilt towards the strongest firms than they once did, and might
make a pretty good cyclical purchase at this point.

The largest holdings in descending order are now:
BAC (8.29%)
JPM
C
WFC (5.85%)
GS
USB (3.31%)
AIG (3.30%)
AXP (2.76%)
MS
BK (2.38%)
MER
MET
PRU
WB
STT (1.74%)
AFL
TRV
ALL
PNC
CME


The percentages are the weights within XLF, and are given for some of
the firms about whom something nice might be said by at least some people.

In short, it's not as scary as you might think. It's not overstuffed
with Bear Stearns, Lehman, Freddie Mac and WaMu. Not any more!
Though it no doubt it still contains some nearly worthless firms, they
probably don't dominate. The sector as a whole will not go to zero, and
will probably be priced a lot more richly in a few years' time.
I'd actually recommend this a potential entry for someone planning
a multiyear hold until the financials are again inside the pale,
but who isn't entirely comfortable doing their own due diligence
on individual financial companies. The value of the ETF should track
loosely the aggregate value of the whole sector, as it's supposed to.

XLF is at 21.11 at the moment, but give its jaggedness lately there's
a good chance one can yet pick it up in the $20.00 range.
Of course, it will require patience and the nerve not to sell on
the panics yet to come.

A fabulous investment? Nope.
But, it should outperform most stuff between now and the next
cyclical valuation top for financials in a few years.

Jim
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