Subprimal Fears Signal a Time to Buy

Dan Fuss, the veteran bond guru at Loomis Sayles, is cautiously optimistic that the aftershocks of the subprime fallout will be contained. "It's probably not serious," he says, though he says he remains watchful.

Margie Patel, junk bond manager at Pioneer Investments, takes a similar view. "At this point, it doesn't look as if the subprime problems have really spread to other areas," she says. She believes the housing market will continue to slide "for about another year" but that the rest of the economy is growing nicely and will pick up the slack.

Well, you can take your own view. Certainly it's hard to see why Citigroup (C - Cramer's Take - Stockpickr) should be worth about 8% less than it was a month ago. At $49.53 on Friday, it was 11 times forecast earnings, yielding more than 4%.

Bank of America is also down 8% in a month to $49.62, 10 times likely earnings, yielding 4.5%. Wells Fargo (WFC - Cramer's Take - Stockpickr), Warren Buffett's favorite bank, is down 6%. Surely the prices either were too high a month ago or are too low today.

Even if you take the gloomiest view on the likely economic fallout, there is value around. Ken Heebner, of CGM Focus mutual fund, is taking a deeply pessimistic view of the subprime collapse and the housing market but is still happy to hold investment bank stocks such as Merrill Lynch (MER - Cramer's Take - Stockpickr), Morgan Stanley (MS - Cramer's Take - Stockpickr) and Goldman Sachs (GS - Cramer's Take - Stockpickr).

All of which makes the iShares Dow Jones US Financial Sector Index (IYF - Cramer's Take - Stockpickr) exchange-traded fund look like an interesting play.

The ETF, which trades through the day like an ordinary share, spreads your money across the sector. Its top 10 holdings are Citigroup, Bank of America, JP Morgan Chase (JPM - Cramer's Take - Stockpickr), insurance giant American International (AIG - Cramer's Take - Stockpickr), Wells Fargo, Wachovia (WB - Cramer's Take - Stockpickr), Merrill Lynch, Goldman Sachs, Morgan Stanley and U.S. Bancorp (USB - Cramer's Take - Stockpickr).

At $112.70, the shares are down to their lowest levels since last September and yield 2.5%, according to Nuveen Investments.

If you're bullish overall, that's probably the place to buy. The great paradox of financial stocks generally is that over the long haul they have been fantastic investments, but you only get to buy them at a bargain when everyone is panicking -- and that's when you don't really want to buy them.