Growing fears about Europe's financial crisis continues to spread into the U.S. and affect the share prices of the largest financial institutions. However, America's big banks are a lot stronger today than they were three years ago and any effect from Europe is not going to be as impactful as what happened here in the U.S.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Opportunity Converges
In addition to Europe, thanks to a poor trade by JP Morgan (NYSE:JPM), banks have sold off and again offer patient investors a chance to own them at very attractive prices. Coming out of the financial crisis, Wells Fargo (NYSE:WFC) and JP Morgan were widely considered the two strongest banks. Despite the trading loss, JP Morgan remains a very strong and well-capitalized bank. Now, shares trade for around $33, yield almost 4% and trade for roughly 70% of book value. Shares in JP Morgan are a perfect example of opportunity emerging from a crisis, very similar to what happened in late 2008 and early 2009. Whether JP Morgan ends up losing $3 billion or $5 billion from its poorly executed trade, the valuation today appears very favorable to value-seeking investors.

Take Your Pick
The overall U.S. financial industry has sold off and investors can choose from many of the largest names. Bank of America (NYSE:BAC) shares advanced by over 50% this year and have since fallen back to less than $8 a share. While many investors are reluctant to rely on book value as a valuation proxy for today's financials, it still serves a useful purchase. And with BAC trading at less than 40% of book and less than 60% of tangible book, that's a wide enough discrepancy to warrant a closer look at the stock. Citigroup (NYSE:C) shares, back at $27 a share, now trade for 44% of book value. Again, at these valuation levels and assuming Citi is worth 65% of book value (a reasonable long-term assumption), shares have an upside of 50%.

SEE: Book Value: How Reliable Is It For Investors?

The Bottom Line
At the current prices and with a significant discount from book value, large U.S. financials possess a solid margin of safety. The wide discount from book leaves a lot of room for error. Book value does not need to be accurate at these levels for investors to do well now.

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  5. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  6. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  8. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  9. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  10. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
RELATED TERMS
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!