Market Overview

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 (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."

Top Ideas

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

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

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

Posted-In: Baird David A. GeorgeAnalyst Color Long Ideas Upgrades Price Target Analyst Ratings Trading Ideas


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