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JPMorgan, BlackRock, Goldman, and More: Examining the Underlying Components of XLF


Here, a look at how much more room the financial sector has to run, and the buying opportunities in the sector.

If you added the 21st company on the list, BlackRock (NYSE:BLK), you'd have another four-star-rated company that is trading at a solid discount to its 52-week high – it's trading at 57% of its 52-week high.

Of this whole group, only Citigroup and JPMorgan are trading at a TTM PE of less than 10.

I am intrigued by Goldman Sachs, JPMorgan, and BlackRock. I think that all three are best-in-breed within their given businesses in the financial sector. You could be very comfortable owning any of these three firms.

But as usual, we want to be paid to own them. So, I like the idea of selling puts that are just OTM to get forced to buy them at a lower price. And if you don't get triggered, then you pocket the premium for your efforts.

In particular, I like entering BlackRock and Goldman by selling OTM puts. I think JPMorgan already gave you the chance to own at a discount earlier this year when it announced the one-time trading losses. If JPMorgan would pull back again, I would look for an entry.

The November puts have a lot more premium in them because they carry the election risk and earnings announcement risk. But I still like them.

BlackRock puts for November at the $165 strike are trading at $2.15. With seven weeks until expiration. That is about a 1%+ premium to get paid to take the risk of ownership at $165 per share. BlackRock currently is trading at $176.55, so the $165 price represents a 6.5% discount from the current price. I like that trade-off for a best-in-breed company.

For Goldman, I think you need to set your comfort level a little lower. The November puts at $105 pay a little over $1 or about 1% premium you collect. But the $105 price is a $12.75 discount from the current price, or a 10.8% discount to the current price of the stock. Given that Goldman is a little closer to its 52-week high than BlackRock, I want a little more margin for error.

Goldman and BlackRock are best-in-breed firms that you can own confidently in your portfolio if you are looking for any 'inner guru' picks!
No positions in stocks mentioned.
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