Financial Stocks That Aren't in a Fix
Given the breadth and depth of the credit crisis, the ranks of financial firms that have prospered in the past year are thin. But nontoxic financial stocks—those not exposed to the ultra-risky financial instruments that have bedeviled many industry players—do exist. Here are a few:
• Cullen/Frost Bankers (CFR) (USB) The booming energy sector makes Texas a great place to find banks on more solid footing, says Jim Bell, portfolio manager at Liberty Ridge Capital. San Antonio-based Cullen/Frost "has done a great job on the credit front," says Bell.
• T. Rowe Price (TROW) (USB) The Baltimore-based fund company has a hefty stream of fee income, and, says Terry Morris of National Penn Investors Trust, "zero debt—unheard of for this type of business."
• U.S. Bancorp (USB) The Minneapolis-based bank's shares, while volatile, have notched a small gain since last August, in part by cutting costs in an already efficient organization. "They're an exceptionally profitable bank," says Blake Howells of Becker Capital Management.
Muhlenkamp's Next Move
It has been a tough couple of years for Ron Muhlenkamp. After stellar returns in 2003 and 2004, the Muhlenkamp Fund (MUHLX) lagged peers in 2006 and lost nearly 10% in 2007. Still, it was up some 10%, on average, over the past five years. Morningstar (MORN) says investors "should keep the faith." Muhlenkamp spoke with BusinessWeek's Ben Levisohn.
What hurt your performance?
We've often been good at identifying multiyear trends—we bought housing stocks in 2000 and made good money in homebuilders and financials. We knew there was a bubble in home prices, but we didn't think homebuilding and financial stocks were overpriced. They came down harder and faster than we allowed for.
How does the recession affect your investing?
In many ways, this recession looks familiar to us. What is different this time is the weak dollar. When the dollar is strong, it benefits American consumers and squeezes producers. In 2001 we wanted to own consumer things—everything from housing to "adult toys" like motorcycles and mobile homes.
Now we expect to see the consumer shift spending and, with the dollar weaker, we want to own American producers that sell to the rest of the world—companies like IBM (IBM), Cisco (CSCO), and Caterpillar (CAT).