This Financial Stock Has a Near-Term Catalyst

Stocks recovered from their lows of the session to post a small loss, with the Dow (DJINDICES: ^DJI  ) and the broader S&P 500 (SNPINDEX: ^GSPC  ) both down 0.1% on the day.

Fiscal slope watch
In this morning's column, I wrote:

Republicans have a greater incentive not to reach a last-minute agreement [to avert the fiscal cliff]. Indeed, the closer we get to the U.S. Treasury reaching the limit of its borrowing capacity (which must be extended by Congress) -- expected to be some time in February -- the more leverage Republicans can obtain in fiscal cliff negotiations.

Sure enough, Politico, the well-connected Arlington, VA news organization, reported this afternoon that Speaker John Boehner told House Republicans in a conference call today that "he still sees February and March as the true deadline." Boehner made this statement in response to a question from a member who asked what leverage the debt limit affords their caucus.

Investors should be ready to start down the "fiscal slope" (a better analogy than a cliff -- I explain why here). "Nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year," writes Politico.

Click here for our latest fiscal cliff coverage, which focuses on the implications for investors.

The micro view
At the end of last month, I mentioned life insurer MetLife (NYSE: MET  ) as a potential value play. Today, the Financial Times' influential Lex column plugged the shares on the same basis, concluding that, "for the patient investor, it could be an opportunity." Patience is certainly a key trait for a successful value investor, but it may not even be required here.

Last March, following a round of stress tests, the Fed refused to endorse MetLife's capital distribution plan, which called for an increase in the dividend to $1.10, and a $2 billion share buyback authorization; the insurer's dividend has remained at $0.74 per share since 2007, and it has not repurchased any shares since 2008.

Because it has a small online deposit-taking operation, MetLife is regulated as a bank holding company; however, it has agreed to sell this activity to General Electric. On that basis, and given the fact that it carries much lower leverage than a bank, there's little reason for the Fed to refuse its endorsement at the conclusion of next year's capital review in March. Assuming a dividend of $1.10 per share -- which MetLife can easily cover -- the shares would sport a smart 3.3% dividend yield, based on today's closing price of $32.88. Buying shares back at a discount to their intrinsic value would do shareholders no harm, either. In an environment in which the broad market is whipsawed at the utterance of a politician or central banker, that potential catalyst is not to be overlooked. And if it doesn't provide an immediate re-rating in the shares? Investors can simply collect a rich dividend -- patiently.

The same potential catalyst applies to the most-talked-about bank out there: Check out our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy, and three reasons to sell. Just click here to get access.


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