There’s a lot of worry about the state of the credit market in the United States and everyone’s along for the ride down. Despite a few attempts at clawing back up, the bears have a stranglehold of Wall Street and markets around the world – the TSX has been beaten down as well. The volatility index has spiked up to its highest levels in over 3 years, indicating that fear is driving the markets.
I believe the reaction has been exaggerated and many solid companies are getting oversold. Even the industries directly related to the credit and investment concerns – the brokerages and the banks – there are many companies that have little exposure. For example, Bank of America doesn’t even play in the subprime mortgage market, but its stock has been battered, just following along in the sell-off. This is a stock that deserves a good, hard look. Its fundamentals are solid and the recent pull back presents a nice buying opportunity.
Additionally, Goldman Sachs looks like it could benefit from the whole mess. It doesn’t have much exposure to the space either, not to the extent of some of the other investment houses. Additionally, it is financially strong and could look at picking up one of the other brokerages while they’re weak or at least pick Bear Stearns’ assets apart should they go under.
Take a look at the space. It’s risky, but there’s also a lot of opportunity. Let’s see if the Dow can form a nice ‘W’ bottom and start bouncing back next week.