Avoid This Hot Stock

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CompanyFinancial Bull 3x (NYS: FAS)
Submitted byAll-Star starbucks4ever
Member Rating99.08
Submitted on8/23/2011
Stock Price at Underperform Recommendation$11.72
Financial Bull 3x Profile
CAPS Star Rating (out of 5)*
Fund FamilyDirexion Funds
IndustryETF
Comparable PeerFinancial Bear 3x (NYS: FAZ)
Components

Goldman Sachs (NYS: GS)

U.S. Bancorp (NYS: USB)

Citigroup (NYS: C)

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This week's thumbs-down pitch:
This is not an ordinary pullback in banking stocks. When [Bank of America (NYS: BAC) ] drops from $17 to $16 for no apparent reason, it is a buying opportunity. But when it drops from $17 to $7, it means there IS something that you don't see. A major bank does not lose half of its market cap through some random fluctuation. 

Yes, at some point FAS will be a future ten-bagger. But during the last recession, FAS started a bull run only after we a) learned that banks had a problem with their balance sheets, and b) learned what measures were being taken to address the problem. Right now, we are in a stage prior to a), waiting for the shoe to drop. So whenever FAS starts going up, it will be AFTER we learn what was ailing the banking system during this bear market, and certainly not BEFORE that. 

For now, there is nothing ahead for this segment except for the flocks of cockroaches lurking unseen in some crevice of the financial system. And FAS looks in a good position to lose 95% of its value before starting its next 1000% bull run.

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At the time this article was published The Motley Fool is investors writing for investors.Dan Dzombakdid not have a position in any of the companies mentioned in this article. Pitches must be compelling and made in the past 30 days.The Motley Fool owns shares of Citigroup and Bank of America. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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