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A look at bank warrants

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June 21, 2011 – Comments (3) | RELATED TICKERS: BAC , JPM , HIG

 

I just came across an interesting WSJ article that talks about the stock warrants that many major financial institutions were forced to issue during TARP.  While some have been big winners as investments, many have come back down to Earth lately.  The question is, are they buys?

I'm not personally a big fan of leaps or long-dated options.  Yes, I know that they can end up being huge winners, but they also can expire completely worthless.  I personally like to purchase stock in companies that have some sort of specific catalyst or special situation that will provide a tailwind to them in the near future.  Ideally, these companies will also pay solid dividends that they have excellent coverage for.  It is a lot easier to ride out the rough patches in the market if you know that you are being paid to do so and that some events will likely happen in the future to potentially juice the returns of your holdings.  Not to mentionthe fact that I am staying away from banks in general because they are so opaque that no one has any idea what sort of dragons lurk in the darkness of their books.

I'd love to hear others thoughts on bank warrants.

Battered U.S. Financial Stocks Warrant a Closer Look From Investors

http://online.wsj.com/article/SB10001424052702303823104576391901781809160.html?mod=googlenews_wsj

Deej

3 Comments – Post Your Own

#1) On June 21, 2011 at 11:22 AM, portefeuille (99.59) wrote:

some somewhat related posts.

 

November 24, 2008, Two TARPs for Citi (C)

May 26, 2009, What about all those warrants?

July 10, 2009, Where is the TARP money?

November 19, 2009, Treasury to start selling TARP bank warrants

December 04, 2009, First TARP Warrant Auction Complete

March 01, 2010, Bank of America Warrants Being Auctioned

April 24, 2010, Opportunity in TARP Warrants

September 01, 2010, TARP Warrants...Deal or No Deal?

January 02, 2011, Bank of America - common stock vs TARP warrants

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#2) On June 21, 2011 at 7:30 PM, MegaEurope (21.47) wrote:

I made a spreadsheet to compare TARP warrants.  Here are my thoughts.  I haven't bought any yet.

Buy (over 8% estimated CAGR)
PNC-WT
JPM-WT
FFBCW
GM-WTB
GM-WTA
HIG-WT

Hold (5-8% estimated CAGR)
CMA-WT
LNC-WT
TCB-WT
COF-WT
WTFCW
SBIBW
SBNYW

Sell (0-5% estimated CAGR)
WFC-WT
WFSLW

Strong Sell (negative estimated CAGR)
BAC-WTA
VLY-WT
AIG-WT
BPFHW
C-WTA
BAC-WTB
C-WTB

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#3) On June 21, 2011 at 7:59 PM, TMFDeej (99.40) wrote:

Thanks for the list Mega.  It seems as though you agree with the market sentiment that the BofA warrants are junk.

The one that I have been the most intrigued by is HIG.  I see that made your buy list.

Deej 

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