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Stress tests - where is the stress ?

Finally stress tests on 19 biggest banks in USA is over and what a gift it was. When they were announced, everybody discounted the merits of these tests and stocks of banks which were going thru these tests got killed as if they were going to get nationalized come May. Many folks panicked and sold their holdings in these banks. Even smart money stayed on sidelines.
Now that results of these tests are announced and banks supposedly need about $75B to raise This is peanuts for these 9 banks considering what they are getting in return.
Confidence: To stay in business, banks need this most fundamental attribute which was non-existent during last few months.
In one master stroke, Obama, Geithner and Bernanke created confidence in banks and hence Bank of America which needs to raise over $34 got a boost by 60% in its stock price in one week.
Fortunately, I spotted the trend correctly early in the cycle. Check out my post on 3/22
Hope some of my blog readers made some money along the way !
This week, instead of recommending one pick of the week, I am going to recommend one way - I call it "Preferred" way of investing in stocks:
There are two types of stocks:
Common stock - these are ownership stocks which most of us are familiar with (e.g. BAC, BCS, DDR, PLD and so on)
Preferred stock - these are fixed value stocks (normally with face value of $25) and pay regular dividends. In case of liquidation, they are superior to common stock (but junior to bond-holders)
I like investing in preferred stocks at this time because many of them are trading at 40-50% of their value. So if you believe that company is going to survive, then these preferred would regain their value and trade very close to their face-value.
Here are some of my picks (I had recommended them in my earlier posts also):
(preferred stock symbol on Google, buy price, all of them have face value of $25 and dividends of 7-8% per year)
  • SFI-E, SFI-I : $7.50
  • DDR-G: $10
  • BAC-H: $16
  • BCS-D: $17
  • PLD-G: $14
  • GKK-A: $5.5 to $6
  • IGK: $16-17
  • IDG: $14.50
There are so many of these stocks which should give potential return of 25-100% and generate periodic income. That's why I call it as "Preferred" way of investing !
Good luck and have a good weekend

/Shyam



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