TMFDeej (99.47)

A look at bank warrants

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