Retirement & Financial Planning Report

Financial stocks have taken a pounding from mid-1999 to mid-2000. Typically, such stocks trade at 75% of the prevailing market multiple. That is, with the S&P 500 trading at 28 times estimated 2000 earnings, bank stocks should trade at 21 times earnings. Instead, they’re trading at about 14 times earnings. Rising interest rates have hurt these stocks but the Fed seems willing to let rates stay where they are, as the economy slows. Even with rising rates, banks have shown strong earnings growth and solid balance sheets. Continued merger activity should help banks become more efficient and more profitable, thus pushing up prices. A few years ago there were 20,000 banks in the U.S.; that number has dwindled to 8,000, with experts predicting further consolidation to 4,000 banks by 2010. You can buy individual issues or invest through specialized financial funds. Top performers, according to Morningstar, have been Davis Financial Fund (800-279-0279) and Invesco Financial Services (800-525-8085).