It's been a raucous month for most of the financial sector. The failure of Silicon Valley Bank and the subsequent collapse of its parent SVB Financial prompted a shockwave that rattled most money-related names well beyond the banking industry. Fears of a financial crisis comparable to 2008's subprime mortgage meltdown are still being stoked.
The thing is, matters are dramatically different now than they were 15 years ago. Silicon Valley Bank's demise is largely the result of its own missteps and its overweight exposure to tech sector customers. Most other banks are doing just fine. It's just that investors, as a whole, are choosing not to see it.
Veteran investors, of course, think opportunistically; erroneous sell-offs ultimately present a buying opportunity. To this end, here are three great beaten-down financial stocks to consider even if you've only got $500 worth of idle cash available to invest right now.
1. Charles Schwab
The steep sell-off Charles Schwab (SCHW 1.14%) shares made just two weeks ago never made a whole lot of sense. Although the Texas-based brokerage certainly has its fair share of California clients, its geographical reach spans from coast to coast. Its banking arm is also quite modest compared to its brokerage operation, and its bank deposits are backed by a different, healthier mix of long-term securities than ultimately upended Silicon Valley Bank. Also, the company -- unlike Silicon Valley Bank -- has other liquid assets it can use as a backstop against the unrealized losses it's nursing on its long-term bonds. Schwab was simply in the wrong sector at the wrong time. Its shares are now beaten down as a result.
Just know, however, that insiders are taking advantage of the setback in a big way. Current CEO Walt Bettinger bought 50,000 shares following the stock's rout, while founder and former CEO Charles Schwab, along with a bunch of company directors, scooped up new positions for themselves. All told, at least $7 million worth of insider buying has materialized just within the past couple of weeks.
And that's increasingly looking like a brilliant move. Not only is the company mostly shielded from the banking industry's prospective capitalization woes, but it may actually be benefiting from them. Schwab saw an influx of $16.5 billion worth of deposits last week alone as consumers and corporations alike seek out what the company describes as "a safe port in a storm."
More deposit growth could be in store, too, as more banking customers reconsider whether or not they want to worry about further banking fallout.
Take the hint.
2. Bank of America
The pullback Bank of America (BAC 2.06%) shares dished out in the wake of the Silicon Valley Bank debacle makes a bit more sense, but it still misses the bigger point -- SVB's vulnerability was unique to SVB and smaller banks of its ilk and geographical footprint. Bigger, nationwide banks like BofA are fine, well-shielded from the sort of risk that ended up upending Silicon Valley Bank.
That's not to say Bank of America isn't sitting on unrealized losses of its own within its bond portfolio. It is. Like Schwab (and like Silicon Valley Bank before it sold its long-term bonds at a loss to meet its liquidity needs), BofA is underwater to the tune of $110 billion with the bonds that ultimately reflect and are meant to back customer deposits.
It just doesn't matter. As Morningstar's Jakir Hossain explains, "banks would only be pressured to sell those securities and realize those losses under dire circumstances, such as if customers start withdrawing their money all at once and trigger a liquidity crisis. This is less likely to occur for extremely large banks such as Bank of America." And to the extent it could happen, the Federal Reserve recently announced it would provide needed capital at the par value, or face value, of banks' current bond holdings rather than their current, lower market values.
And this might help the bullish case. Like Schwab, BofA is seeing a net benefit from SVB's implosion. The bank reports more than $15 billion in new deposits have been made just since then.
3. Prudential Financial
Last but not least, put insurer Prudential Financial (PRU 0.78%) on your list of prospective buys if you've got an extra $500 to put to work right now.
It's not a bank. It's not even close to being a bank, in fact, which would leave it hampered by restrictive capitalization regulations. While its payout pool is exposed to bonds with values that have been driven lower of late by rising interest rates, it also holds equities and other types of investments with values that perpetually ebb and flow. What's happened over the course of the past year isn't exactly foreign to the insurer; its customers will still be paying their insurance premiums because they need that protection regardless of the economy's health. That's what makes the stock's 20% pullback from earlier this month, in step with the banking industry's meltdown, all the more confusing.
As the old adage goes, though, don't look a gift horse in the mouth. Investors will collectively remember how resilient the insurance and investment management business is soon enough. They should begin buying Prudential shares as a result.
The kicker: You can step into this stock while the dividend yield is above 6%, while shares are trading around 20% below their consensus price target, right around $101 apiece, and only priced at 6.6 times this year's projected earnings. All three are at bargain levels not seen in a long, long time.
