Stay away from US Bank stocks

Brett Arends had an article in the Wall Street Journal about why you should ignore the bank stock rally. I am a strong believer in the Canadian Banks, but not the US financial sector. I think there are just too many unknown factors with these institutions and the risks are too high.

Brett lists 10 reasons as to why investors should stay away from these stocks;

4. Recent earnings reports, while often not as bad as many had feared, should raise more eyebrows. Write-offs are certainly rising. And analysts at SG Securities say, for example, that up to one third of Wells Fargo’s first -quarter profits may have come from an accounting change.

The recent excitement over the bank results did not excite me at all, the removal of mark to market and accounting changes were responsible for the positive results not the business model. The fundamentals of the banks have not changed from last year, too many toxic assets and too much debt it’s just not for me.

8.  As for the Wall Street banks: They aren’t run for the benefit of the stockholders anyway. They are run for the staff. The threat of a crackdown on pay is going to cause a stampede to new firms. These banks will happily issue new shares, diluting existing stockholders, just to pay off the TARP money so they can get back to handing out fat bonuses

I think this is an excellent point Brett makes, the bonuses paid to executives are reason enough to avoid these stocks. All Canadian CEO’s recently gave back their bonuses and gave shareholders a say in their pay.

Here are couple other reasons he points out:

9. Why bother? Banking isn’t the only industry on the stock market. And investors have lots of choices these days. There are plenty of good quality businesses in other industries whose stocks are looking reasonably valued. Why gamble with your savings?

Just to name a few:

Coca-Cola
Johnson & Johnson
Vodafone
Proctor & Gamble

10. Finally, and most importantly: Even if, by some magic, the economy, the stock market and the banks recovered back to 2006 levels I still wouldn’t want to own banking stocks. The bankers would just find another way to blow all the money.

There are great long term investments opportunities out there, the US banks are definitely not on my radar for long term investments. What are your thoughts on US financials?

Why I am Staying Away from Bank Stocks

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