Tuesday, January 24, 2012

How Net Payout Yields Predicted Financial Stocks' Earning Results

Going into this earnings release, investors appeared a lot more bullish on Capital One Financial (COF) than Goldman Sachs (GS). Capital One's stock was trading at 6 month highs and Goldman was near the lows. All the media could focus on was how bad the investment banking and brokerage business was for Goldman Sachs.

Management, though, was telling a different story to anybody paying attention. All year Goldman Sachs has been busy buying back stock while Captial One was focused on repaying debt, either signaling that the stock wasn't that cheap or maybe the future wasn't that bright.

In our Net Payout Yields Model, these signals were used to switch out of Capital One at the end of December and into Goldman Sachs at the beginning of January. Contrary to the typical opinion in the market about stock buybacks, large caps with strong earnings profiles tend to benefit from buybacks. The media tends to focus on the failures such as Netflix (NFLX) while the winners go unnoticed.


Read full article at Seeking Alpha.


Disclosure: Long GS. Please review the disclaimer page for more details. 



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