Tuesday, January 04, 2005

WAMU a Hold

Washington Mutual still a hold on our radar screen--the buyout rumor that's trailed the bank for some time now still intrigues us. They're currently cutting down costs, invigorating their serivce line, and more importantly, still trading at a dirt cheap valuation--the $40 stock trades at 14X earnings and yields over 4%. Sweet! The technicals look appelaing--a brief look at my IBD weekly showes a cup and handle, unless I'm mistaken. However, trouble may loom on the horizon: The cost of money is slowly coming back to the rise. Since then June 30 this year, the Fed has raised rates four more times to 2.25 percent. Borrowing costs will likely keep rising next year--Goldman expects the Fed's target rate to reach 3.5 percent by the end of 2005. Washington Mutual declared in June that rising rates would knock at least 20 percent off 2004 earnings. Yikes! But what if the stock DID fall? Perhaps a suddenly depressed stock price amidst rising rates could spark interest amongst shoppers? Then, I'd look closer at WAMU.

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