Where to Hide When Bank Stocks Bomb

JPMorgan Chase (JPM) is showing itself to be an earnings powerhouse, despite the company's second-quarter hiccup, when it booked $4.4 billion in trading losses from the hedging activity of its Chief Investment Office. The company still earned $5 billion, or $1.21 a share, during the second quarter, and then reported third-quarter earnings of $5.7 billion, or $1.40 a share, for a solid return assets of 1.74%, and a return on tangible common equity of 16%.

Investors will be looking for a major return of capital from JPMorgan after the next round of Federal Reserve stress tests are completed late in the first quarter of 2013. The company suspended its $15 stock repurchase program in May, after CEO James Dimon first announced the CIO losses. JPMorgan Investors may also be treated to another dividend increase after the stress tests. The shares were up 27% year-to-date through Friday's close at $41.16. Based on the current quarterly payout of 30 cents, the shares have a dividend yield of 2.92%.

JPMorgan's shares trade for 1.2 times tangible book value, according to Thomson Reuters Bank Insight, and for eight times the consensus 2012 earnings estimate of $5.31, among analysts polled by Thomson Reuters, which are rather low valuations for this type of earnings performer.

AIG may be taking some serious lumps from Hurricane Sandy, as the company has a significant property & casualty market share in the Northeast. Unlike most of its major P&C competitors in the region, AIG reported an underwriting loss of $397 million during the first half of 2012, although the loss narrowed from $1.962 billion, during the first half of 2011.

AIG has made a ton of progress in repaying the federal government after the company was bailed out in 2008 and 2009. The company's shares were up 50% year-to-date, through Friday's close at $34.72, and traded for 10 times the consensus 2013 EPS estimate of $3.50.

For defensive-minded investors, Korzenik likes real estate investment trusts that focus on multifamily buildings. "We usually approach REITs through ETS," he says," adding that "what we saw in the summer rally was that a lot of money moved into more aggressive names, and some of the steady-as-you-go names, including the REITs, just fell by the wayside. Now we think there's a period where there's renewed interest."

Two of Korzenik's favorite REIT plays are American Campus Communities (ACC) and Essex Property (ESS).

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