which banks to invest in?

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26th Oct 2009 by Burt Carlson

It is probably smart to stay away from most banks for now as an investment. If you must invest in a bank do your homework. Get the best independent advice you can. Everyone already knows how much the banks have been and will continue to be hurt by the housing crisis. But there is more. Commercial and construction lending is the next big crisis according to many analysts. Also, many of the major credit card issures are banks and those loans are not doing well. All of this means big losses for the banks which means lower profits and likely lower or declining stock prices.

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26th Oct 2009 by JonB

As you may imagine, there is no simple answer to this question. But there are a few factors that you should consider when investing in a bank or company.

When doing your analysis on which bank to buy stock in, do not focus on the share price. Simply because bank A is priced at $1.00 a share and bank B is priced at $2.00, doesn't mean bank B is twice as expensive. It may actually be cheaper.

There is no real rhyme or reason behind how many shares of stock a company issues. Two companies with the exact same assets and growth could go public at the same time. If one issues 100,000 shares and one issues 200,000 shares, the latter will be half the price of the former, simply because there are twice as many shares. As you can see then, simple share price doesn't tell us how expensive or cheap one bank is compared to the next.

To compare different banks in an apple-to-apples way, there are a few things to look at. The price to earnings multiple or "P/E" is the simplest way. The higher the P/E, the more expensive the bank.

There are a few other things to look at:

1.The bank's balance sheet. Check how much cash it has on hand, and how much debt it's holding.

2. Does it pay dividends?

3. What has is done in the last few years as far as growth?

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25th Oct 2009 In Banking 2 Answers | 2214 Views
Subjects: banks, invest in banks,

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