What the Pros Said, Part III

In the fall of 2007, a prominent money manager and self-described 'contrarian' investor wrote in a Forbes article:

"Here are several stocks to look at:

CIT Group (CIT) is one of the nation's most diversified finance companies. Because of its small subprime business, CIT has dropped 34% from its June high. CIT presents good value at seven times trailing earnings, with a dividend yielding 1.4%.

One of my longtime favorite stocks is Fannie Mae (FNM), which I recommended last year and in my 2006 assessment column last winter and suggested that you keep it. If you don't own Fannie now, buy it. The company has taken its lumps in recent years, yet it should benefit from the subprime mortgage debacle. Fannie, along with sister entity Freddie Mac (FRE), has the industry's best mortgage acquisition standards, and a bucketful of cash."

And from his followup January 2008 column:

"You have to choose carefully here, since many financial stocks will not come back for a long time, if ever. . . . The safest plays are among the big banks."

"A panic puts a magnifying lens on risks, making them look much bigger than they are. Prime examples: Freddie and its sister agency, Fannie Mae. Freddie yields 3.1%."

"...I advise acquiring positions gradually. Who knows how close we are to the bottom of this very jumpy market? Still, those who buy bank stocks should be well rewarded over the next couple of years."

Outcome: Prices for the seven financial stocks mentioned in the January 2008 column, including Citigroup, Freddie Mac, and Wachovia, declined an average of 74.0% in 2008.

Dreman, David. "Panic No. 12." Forbes, October 15, 2007.
Dreman, David. "Seize The Day." Forbes, January 7, 2008.