This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Financials That Shake Off the Subprime Slime

This column was originally published on RealMoney on April 4 at12:18 p.m. EDT. It's being republished as a bonus for readers. For more information about subscribing to RealMoney, please click here .

Once more into the breach. With fears that the growing subprime catastrophe is about to upset other companies in the financial industry (if not the entire U.S. stock market and economy), insiders at several of the firms supposedly on the front line of any contagion are fighting the perception that their stocks are just so many dead men walking.

In the wake of the severe market selloff at the end of February, there was notable purchasing by executives and directors at:

And that's just for starters.

The actions of these insiders seem to indicate that fears of a subprime-triggered market meltdown are overblown, and that the attractive indicated yields on most of these securities are very real.

When asked his opinion of whether the more-than-16% indicated yield is sustainable on the punished stock of American Home Mortgage, analyst James Ackor at RBC Capital Markets quickly answers, "No." But not for the reason you might expect: "I think the stock will go up," he says firmly.

In stark contrast to high indicated yields often presaging a future reduction in payout, AHM's earnings and distribution are very likely to increase yet again in 2007, says Ackor.

Not that he thinks everything is hunky dory. He fully expects increased write-offs, reduced demand in the secondary market, higher insurance costs and a lower volume of originations to be par for the course this year for mortgage players. But Ackor calculates that these risks "should be manageable and not have a severe impact."

So it's a matter of the degree to which the impending (and fully acknowledged) negatives will actually affect earnings in the sector. And in weighing the factors, most of the industry watchers and insiders I spoke with echoed similar sentiment. To wit: Most of the financial stocks that have been hit by the subprime pin action now have the known risks more than priced in.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ACAS $15.80 1.48%
CBF $30.23 -0.07%
IRC $10.61 0.19%
AAPL $93.74 -1.15%
FB $118.00 1.10%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs