New Year's Resolution: Financials in 2013
Cory is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You almost can’t turn on any major news network without seeing information about the “fiscal cliff,” which – though optimism has been gaining recently – is still on the forefront of the economic discussion. I am as worried about it as the next guy, especially being an active investor who is cognizant of the economy as a whole, as well as individual tax rates. As it relates to investing, though, we are currently seeing fluctuations in the market as talks become more optimistic. Seeing these worries and optimisms as “priced in” to the market as they are hedges to my concern of the market falling off an actual cliff in 2013. The continual discussion of January 1, 2013 though, has me looking to the New Year and potential positions where I’d like to find myself.
I’ll admit that a new year is a relatively ambiguous reason to review our portfolios – it’s something we should constantly be doing. But it seems as though I’m not going to be the only one taking a long hard look at things over the holidays. So let’s take a look at one sector which I think is well-positioned for the New Year and who its winners are going to be.
The Helicopter Is Working Just Fine
In the past 12 months, we have seen a strong growth of money supply in this country (and many others). Nearly every central bank has taken anti-recession steps in hopes of curtailing the issues seen throughout Europe recently. Using M2 as our measure, the United States has seen an 8% growth in the past 12 months, with consistent growth compared to the same time frame last year (9%). Combine this overall growth with the TARP Money that banks still have in their vaults, and you can easily see where the overcapitalization of the industry comes from.
Once we begin 2013, investors will begin their slow but steady pilgrimage back to the brokerage-house financials like Bank of America (NYSE: BAC), and Goldman Sachs (NYSE: GS). There will be a better understanding about the “cliff” moving forward, and investors will be eager to get a piece of this overcapitalized sector. Analysts are expecting Bank of America to substantially increase dividends over the next few years as they meet “stress test” requirements as mandated by the Federal Reserve and release capital. While Bank of America’s dividend was still $.01 on 12/5, popular opinion says that is about to change. B of A isn’t the only one moving in the right direction either.
JPMorgan Chase (NYSE: JPM), who sold shares to raise the capital necessary to meet the Fed’s requirements, announced a plan to buy back $15 billion of its own stock. Wells Fargo (NYSE: WFC) announced they were increasing their dividend to $0.22 / share as well. All of these companies, due to the Federal Reserve’s increased capital requirements are now extremely well positioned for the coming year. Combine that with an increased optimism in the marketplace and an expected increase in trading for the coming year, and these financials are sitting pretty.
How do I play this?
I think that Bank of America truly represents the best value of the group we’ve discussed, but the current market factors at play have all of these banks well-positioned. Wells Fargo had some strong upward movement early this week, but they’ve already announced their dividends and the value I’m discussing here has already been priced in. The same goes for JPMorgan, as their plan was announced back in November. Bank of America is trading at $11 at the time this was written, and it is this investor’s belief that getting in before the New Year will bring you a holiday gift that starts your new year off right.
Cory Jez has positions in Bank of America. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co., and Wells Fargo & Company. Motley Fool newsletter services recommend Goldman Sachs Group and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!