Use the Chatter to Find the Hot Sectors
Everybody loves a good scandal.
Well, as long as you’re not in the middle of it.
But generally, everybody loves a good scandal when it involves a celebrity or when it makes for good television. And I’m sure Credit Suisse Group (NYSE: CS) wishes that they weren’t the center of attention these days after not only one but two unrelated catastrophes hit.
The bank has canceled the bonuses of its directors, slashed its dividend and announced the departure of two senior executives. The whole situation left CNBC’s Jim Cramer yelling that “the whole management has to go.”
CS had already been dealing with bankrupt supply chain finance company Greensill when hedge fund Archegos was forced to liquidate.
The Greensill bankruptcy hit hard after the company told investors that the debt from this deal was low-risk because it was insured … until it wasn’t. Tokio Marine, the company insuring the debt, refused to renew its coverage last month, forcing CS to liquidate the debt.
Now, Archegos has been forced to liquidate almost $20 billion in assets as of late March. This collapse is expected to cost Credit Suisse approximately $4.7 billion.
Even though the two instances seem unrelated, it does feel like someone isn’t doing their due diligence. And investors are surely going to be wary going forward.
Shares had finally recovered to the prices of the beginning of 2020, just to slide back down.
This is a time that investment banks should be seeing prosperity as they feast on market activity and deal-making. So of course, I headed on over to the Wiess Ratings website to see what I could find in the diversified financial sector.
The first thing I found was that the Weiss Ratings system hadn’t issued Credit Suisse a “buy” rating since December 2015. Heeding the Weiss Ratings could have saved CS investors from that headache, and they could have put their hard-earned money somewhere more beneficial.
But that’s in the past. If you’re currently positioned in Credit Suisse, I think you’re in for a bumpy ride.
Now, I want to look ahead. So, I decided to take a look at the highest-rated diversified financials right now.
First up is Berkshire Hathaway Inc. (NYSE: BRK-B). The company is headquartered in Omaha, Nebraska and is led by Warren Buffett and Charlie Munger.
This company is usually a solid “buy”; however, it was downgraded to a “hold” last April. The company finally resumed its “buy” rating in October. The truly shocking part is that Berkshire Hathaway dropped to a “sell” for 55 days during that time period.
Initially, the company focused on long-term investments in publicly traded companies. More recently, it has just bought whole companies. It now wholly owns GEICO, Duracell, Dairy Queen, Fruit of the Loom and many others. Not to mention several other companies in which Berkshire has a large stake, but not full ownership.
Insurance generates the most revenue, but manufacturing generates the most earnings before taxes. And this is key to what happened in Berkshire Hathaway’s rating last year.
Shares are up 14% in the past three months and 41.9% over the past year.
Next up is publicly owned investment manager BlackRock, Inc. (NYSE: BLK). The New York-based company was founded in 1988 and has 70 offices in 30 countries. It has clients in 100 countries and is the world’s largest asset manager, with $8.6 trillion in assets under management.
The company was just recently upgraded to a “B” rating. Now, this is a big deal because the company has historically teetered between “C+” and “B-” since the beginning of 2019. The reasoning attached to this upgrade was an increase in operating cash flow of 98% and a clear increase in earnings per share (EPS).
Shares are up 12% in just the past month and 76.64% over the past year. And I think there is plenty of space for more gains in this one.
Last but not least, we have FactSet Research Systems Inc. (NYSE: FDS). FactSet creates data and software solutions for tens of thousands of investment professionals around the world. By providing instant access to financial data and analytics, its clients can feel informed to make crucial decisions.
The company has been around for over 40 years and has clients in the Americas, Europe, the Middle East, Africa and the Asia Pacific. Plus, FactSet has a 90% client retention rate. Not only do clients keep coming back, but the Weiss Ratings system keeps coming back to a “buy” rating, one FactSet has held since 2014.
Even through COVID-19, the company not only continued to pay its dividend but issued its expected increase. Shares are up 20.6% over the past year.
I wouldn’t be surprised if speculators decide that Credit Suisse is a beaten-down company that will rise from the ashes. You know by now that I’m not convinced by the media hype. Especially when there are so many better options in this industry.