Financial ETF Looks Good in the Bargain Bin

Unrelenting pessimism over fallout from the mess in subprime mortgages has weighed heavily on stocks in recent months, as investors fear that turbulence in the credit market will result in a full-blown credit crunch.

Particularly hard hit has been the financial sector: Shares of the Financial Sector SPDR (XLF Quote), though they have recovered some ground recently, are down about 5% year to date, making it the worst-performing S&P 500 sector by far.

But the focus on tidbits of negative news to the virtual exclusion of some very positive numbers for the sector as a whole may mean that investors have overreacted. Specifically, we see three factors that could make XLF a very attractive investment going forward:

1. Earnings estimates are rising, not falling. ...