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It may be tempting to go bottom-fishing with bank stocks. However, you need to pick and choose your assets carefully. Ally Financial (NYSE:ALLY) stock might appeal to some traders because of takeover rumors that are floating around. Be careful if you’re making investment decisions based on gossip, though. Besides, Ally Financial has significant problems that you might not be aware of.
Don’t get the wrong idea. There might come a time when it’s appropriate to invest Ally Financial. After all, the company has been around for a long time and isn’t the worst banking institution of the bunch.
Before you jump into a hasty trade, however, be sure to conduct your due diligence on Ally Financial. You’ll probably uncover some startling facts and then think twice about whether you really want to hit the “buy” button now.
| ALLY | Ally Financial | $24.19 |
Buffett Takeover Talk and ALLY Stock
Sometimes financial analysts stick to the facts; other times, they may indulge in speculation. It is important for investors to know the difference, and to adjust their strategies accordingly.
Here’s a prime example of this. Per Seeking Alpha, analysts with Gordon Haskett Research Advisors identified Ally Financial as a “potential target” for Warren Buffett’s firm, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B).
The Gordon Haskett comments came soon after Bloomberg reported Buffett had been in contact with the Biden administration regarding the U.S. banking crisis. Now, it’s possible that Buffett and Berkshire might take over Ally Financial, but this certainly isn’t a confirmed fact. It doesn’t provide a sound basis for an investment in ALLY stock.
Take Note of Ally Financial’s Financials
Rather than base one’s investments on rumors and unconfirmed possibilities, it’s better to consider the established facts. And unfortunately, there are some facts that don’t bode well for Ally Financial.
For example, Ally Financial’s net income because of common shareholders totaled $3.003 billion in 2021. That figure cratered to $1.604 billion in 2022.
Here’s another issue that many traders probably aren’t aware of. As MarketWatch reported, Ally Financial has a “high percentage of securities losses relative to capital.” In fact, as of Dec. 31, 2022, Ally had the “largest percentage of negative accumulated comprehensive income relative to total equity capital.”
This is a fancy, math-infused way of saying that Ally Financial probably didn’t have sufficient capital compared to the company’s unrealized financial losses last year. It’s a glaring red flag during a time when the U.S. banking sector is replete with cautionary signals.
ALLY Stock Isn’t a Must-Own Right Now
Assumptions can be bad for your health, including your financial health. Thus, it’s not a wise move to invest heavily in Ally Financial based on any rumors.
The best course of action is to learn more about Ally Financial, and don’t ignore the company’s fiscal issues. Chances are, you’ll decide to hold off on buying ALLY stock as the risk-to-reward profile just isn’t very favorable now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.