Avoid This Hot Stock

Each week, Motley Fool editors cull a top stock idea from the pitches made on CAPS, The Motley Fool's 180,000-member free investing community. Want your idea considered for this series? Make a compelling pitch on CAPS with a minimum length of 400 words.  Want to follow our weekly picks? Subscribe to our RSS feed or follow us on Twitter.
Company Financial Bull 3x (NYSE: FAS  )
Submitted by All-Star starbucks4ever
Member Rating 99.08
Submitted on 8/23/2011
Stock Price at Underperform Recommendation $11.72
Financial Bull 3x Profile
CAPS Star Rating (out of 5) *
Fund Family Direxion Funds
Industry ETF
Comparable Peer Financial Bear 3x (NYSE: FAZ  )
Components

Goldman Sachs (NYSE: GS  )

US Bancorp (NYSE: USB  )

Citigroup (NYSE: 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 (NYSE: 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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The Motley Fool is investors writing for investors. Dan Dzombak did 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 services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 26, 2011, at 12:06 PM, prginww wrote:

    Once again the fool gets it wrong! BA's drop is a classic case of the shorts trying to force down a stock so they can make money at the retail investors expense. They make up stories about insolvency without any actual basis in fact and then fools like the fool pick up on it and spread them even more. Let's face it, the fool and all of those other fools shorting the stock can say whayever they want BUT with Warren Buffett investing $5 billion which way does any person with half a brain think the stock will go long term. Unlike the fool I heartily endorse BA and put a buy on the stock. Let's see whether the fool or I am right by the end of the year. Once again the fool gets it wrong. Oh BTW, if te fool is so good at what they do why did they wait so long before putting this info out. It seems every advisor, stockbroker, ratings agency and fund manager wants to disseminate late timed and worthless info. There must be a reason, Normal investors wake up!!!

  • Report this Comment On August 28, 2011, at 4:46 PM, TSIF wrote:

    Many are written by "investors" who contribute and opinion. The opinion posted here was by an investor, not a FOOL analyst and the pitch was about FAS, an ULTRA bank ETF using BAC as an example. Opinion pieces are published to highlight efforts of the amateur investment community and stimulate discussion.

    Second, Warren Buffet stands to make money whether BAC goes up or NOT. If you could swing a Preferred deal with interest and options then you'd be almost guaranteed to make money too.

    Third, if you think Shorts have that much influence on a stock then you're also misguided. Shorts pile on when they think an equity is over valued but sentiment or long term holders is holding it up. They can't dorp it 50% and in some cases they help it. A surprise or a short upward gets attenuated as they cover. Conspiracy theory.....??

    A fool who is so biased he won't even evaluate/read an opinion article without name calling and by using consipriacy theories typically makes a poor investor, if not on BAC, on something else he/she is infatuated with.

  • Report this Comment On September 06, 2011, at 4:47 PM, joaquingrech wrote:

    @realtechwiz this was a blog entry from a user like you, not a Fool's article.

    In any case, being so disrespectful won't win you many friends in here.

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