Stocks ended last week back near all-time highs after a string of more bad economic news. At this point in an aging bull market, that's like saying stupid is smart, black is white, or Hilary Clinton has not been running for President since stepping down as Secretary of State.
Wells Fargo & Co.
- In This Inverted Market, Down is Up
- 166 Trillion Reasons Why Bank Stocks Are So Cheap
- How Investors Can Unlock the Power of Profit Margins
Not only is bad economic news problematic for the market, but it is being rendered even worse by the policy response by central banks who are destroying the value of money and regulators who have drained markets of liquidity.
My continuing search for sectors of the stock market that are trading cheaply and offer the potential for gain has led me to a controversial slice of the market: bank stocks.
Looking at the "Big Four" in the U.S. banking sector, it's easy to conclude that the sector is undervalued...
But that conclusion may be a bit misleading.
Make no mistake - by traditional measures banks look cheap, and their stocks could do fine until the next financial crisis.
But that's the problem. Looking at banks that way ignores the elephant on their balance sheets, and the potential damage to our portfolios.
Running a business is all about making a profit, so it makes sense that one of the best measures of a company's performance is its profit margins.
Strong profit margins almost always mean a company is well-run, stable, and making money.
A company with healthy profit margins indicates it is efficient at allocating capital and controlling costs, so it can deliver more revenue to the bottom line.
It also means the business has built-in safety. Therefore, a sales slump is less likely to cause an operating loss.