October 29, 2008

Discover Financial Services: Cheap but Risky

I came across this article that states that shares of DFS are a steal at under $12 a share. Yes, you can apply pretty much any financial formula you want to this stock in order to come up with a "cheap valuation" metric, but buying anything in the financial sector in this nervous trading market is risky.

As Buffet said, "In the short term the market is a popularity contest, in the long term it is a weighing machine." Financial stocks may remain very unpopular for quite a while. If you decide to invest, you may have a few years to wait and see a few more dollars fall off of the share price before the market unlocks the value in this stock.

If it gives you any comfort, insiders have been buying shares lately; twice on October 3, and most recently on October 8.

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