XLF ETF Down Almost 9% In The First 8 Days Of 2016; Baird Sees Buying Opportunity

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  • 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 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 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."

Top Ideas

Baird's top ideas in the higher-quality group include JPMorgan Chase & Co. JPM, BB&T Corporation BBT and U.S. Bancorp.

Among names below tangible book value, top picks were Comerica Incorporated CMA and Bank of America Corp BAC

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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Posted In: Analyst ColorLong IdeasUpgradesPrice TargetAnalyst RatingsTrading IdeasBairdDavid A. GeorgeEvan MarksGarrett A. Holland
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