XLF ETF Down Almost 9% In The First 8 Days Of 2016; Baird Sees Buying Opportunity
- In a report issued Thursday, Baird analysts David A. George, Garrett A. Holland and Evan Marks shared a look into the banking sector.
- The analysts said the recent sell-off in banking stocks presents a buying opportunity.
- They upgraded shares of U.S. Bancorp (NYSE: USB) from Neutral to Outperform, setting a $45 price target.
Over the first eight trading days of the year, the Select Sector Financial Slct Str SPDR Fd (NYSE: XLF) was down 8.85 percent. The ETF recuperated 1.15 percent on Thursday, reducing the year-to-date losses to roughly 7.7 percent. Analysts at Baird assured that the sell-off has improved the group’s risk/reward profile.
"USB is one of the highest-quality banks and well positioned to weather a lower-for-longer growth/rate environment," they explained. As per the report, reasons to buy this stock include:
- A discounted valuation
- A diversified business mix and stable execution
- Reduced risk of a negative credit surprise
- Capital return is increasing: "Sustained economic weakness should lead to more M&A opportunities over the intermediate term, and USB is a strong partner with a better currency to fund deals."
The firm noted that, "Energy-exposed bank stocks have been hit hard but increasingly discount recession risk below TBV."
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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