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Analysis: U.S. bank stocks are fine, if you are rich in patience

Analysis: U.S. bank stocks are fine, if you are rich in patience

(Reuters) – The U.S. bank sector has been pummeled this year but investors hunting for bargains there may need deep reserves of patience as banks are particularly sensitive to low interest rates, the uneven economic recovery and the muddy stimulus outlook.

FILE PHOTO: A woman counts U.S. dollar bills at her home in Buenos Aires, Argentina August 28, 2018. REUTERS/Marcos Brindicci/File Photo

The S&P 500 Bank subsector , which kicks off its third-quarter earnings season on Oct. 13, was last down 33.7% for the year-to-date compared with a 5.8% gain for the S&P 500 index.

Banks have been such a drag on the broader S&P financial index that its 19% year-to-date decline is second only to energy’s 49.9% drop among the S&P 11 major sectors.

To be sure, if lawmakers in Washington manage to reach an agreement, a new fiscal stimulus package could help banks if it boosts U.S. loan growth, interest rates and economic activity.

And the bank index is up 12% from its intraday trough on Sept. 2 to a peak on Oct. 6 as yields for longer-dated U.S. treasuries have risen with stimulus hopes as banks profit from higher interest rates.

But investors are unconvinced that recent gains will be sustainable as the Federal Reserve has signaled plans to keep overnight rates low for the foreseeable future in order to aid an economic recovery, which is expected to take years.

“You’re looking at years for this sector to make a full recovery. It will take a lot of positive things to happen in the U.S. economy for it to get back to the type of performance we are seeing in the broader S&P,” said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey. “Investors, in my view, will need to be

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2 cheap UK shares I’d buy today to get rich and retire early

2 cheap UK shares I’d buy today to get rich and retire early

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The stock market crash has prompted some investors to avoid buying cheap UK shares. That’s understandable. They face challenging operating conditions at the present time in many cases. And that could lead to disappointing share price performances over the coming months.

However, long-term investors who can build a diverse portfolio of stocks could benefit from buying undervalued British shares after the recent market downturn. In time, they may produce sound recoveries that improve your financial prospects.

With that in mind, here are two FTSE 100 stocks that appear to be undervalued. They could be worth buying today, and may even boost your retirement prospects.


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A buying opportunity among cheap UK shares

Glencore (LSE: GLEN) could offer good value for money relative to other cheap UK shares. The FTSE 100 mining business has experienced a tough period due to coronavirus. But its assets have largely been able to remain operational throughout the year.

In fact, its marketing division produced a record half-yearly profit that strengthened the company’s overall performance. It could remain a key differentiator for Glencore versus sector peers, since it offers counter-cyclical earnings potential.

Looking ahead, the company is forecast to return to positive earnings growth next year after a challenging 2020. This should aid it in seeking to reduce debt to more manageable levels. Meanwhile, its forward price-to-earnings (P/E) ratio of 12.5 suggests that investors may have factored in further disruption for the wider sector.

Clearly, a weak economic outlook is likely to cause investor sentiment towards commodity businesses to remain subdued in the short run. However, Glencore’s share price could offer recovery potential over the long run as part of a diverse portfolio of cheap UK shares.

A long-term recovery opportunity

Whitbread (LSE: WTB) is another FTSE 100 stock

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