If you want to make back some of the money the banks helped you lose with a mortgage crisis that nearly took down the economy, hold your nose and invest in them.
Sure, we have a lot of reasons to hate the banks. We bail them out; they limit lending. Millions of people can't make ends meet; the banks raise their fees.
(And boy, do we dislike them: Five of the 10 companies in MSN Money's latest Customer Service Hall of Shame, unveiled today, are in the financial sector.)
As investors, we can put this disgust to good use. As time goes by, more people will warm up to banks, realize they aren't all so bad and join the trend, driving up the bank stocks you buy today. Indeed, if history is any guide, bank stocks will outperform the market for the next decade -- the typical pattern for the stocks in the sector that causes a major market meltdown.
Now's the time to move on this because bank shares have been hit hard by worries that Europe's problems will cool global growth. It's a great chance to get shares cheap.
And here's something that might make this a little easier to stomach: While some of those too-big Wall Street banks so tied to the crisis may be buys here -- particularly JPMorgan Chase (JPM, news, msgs) -- they aren't the ones with the most potential. You'll find a richer mix of prospective stock winners among the regional banks.
Think more local
A few options to consider:- Local banks such as Umpqua (UMPQ, news, msgs) and Washington Federal (WFSL, news, msgs) in the Northwest or 1st United Bancorp (FUBC, news, msgs) in Florida. They look strong enough not just to survive but to pick up business as competitors fail.
- Banks that value investors love, including SunTrust Banks (STI, news, msgs) and Fifth Third Bancorp (FITB, news, msgs). They're cheap because they serve depressed regions such as the Midwest, Georgia and Florida.
- Banks where insiders recently have been buying stock in a big vote of confidence, like Flagstar Bancorp (FBC, news, msgs) and Synovus Financial (SNV, news, msgs).
You can play this trend via mutual funds with great long-term records and big exposure to the sector, like the Burnham Financial Industries Fund (BURFX) and the RidgeWorth Mid-Cap Value Equity Fund (SAMVX). Bank-sector exchange-traded funds (ETFs) are another option.
Check the table for more names:
| Best bets | ||
|---|---|---|
Outperforming funds with banking exposure: | Outperforming fund managers' picks: | |
Burnham Financial Industries Fund (BURFX) | ||
RidgeWorth Mid-Cap Value Equity Fund (SAMVX) | ||
Exchange-traded funds: | ||
Deep-value banks: | ||
Banks the insiders like: | ||
Continued: 4 reasons to buy regional banks