Higher Yields Produce Cheap Financials

Fannie Mae(FNM Quote) is the cheapest buy-rated financial stock, but it has been facing accounting issues and regulatory scrutiny. Shares are 34.2% undervalued with fair value at $73.03. The weekly chart profile is positive, with the five-week MMA at $47.55 after setting a 52-week low at $41.34 on Sept. 28. My monthly value level is $46.72, and a weekly close above my monthly pivot at $49.31 indicates potential strength to my semiannual risky levels at $52.63 and $56.82. Shares were recently trading at $48.04.

Although these two stocks are undervalued, the financial services sector is 5.5% overvalued, so investors could hedge these positions with the Financial Sector SPDR(XLF Quote), which has a positive weekly chart profile with the five-week MMA at $30.79. A short of the ETF can be considered at my quarterly risky level of $32.81. The risky levels are just above the 52-week high at $32.60 set on Nov 18. Shares were recently trading at $32.15, and my monthly value level is at $29.61.