US Bancorp (USB) Gets An Injection | Options Trading Strategies

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US Bancorp (USB) Gets An Injection

Today US Bancorp (USB) was selected for assistance from the Treasury's new capital injection plan. The company could receive approximately $6.6 billion in assistance through the sale of preferred shares. That means that stock holders now own a smaller percentage of a larger ownership pie. This is what investors will often call dilution.

On its face, dilution could lead to a lower value per share but the "benefits" of access to capital could offset those disadvantages by increasing the company's ability to remain solvent and to grow in the future. If USB's management team can use the capital effectively, the capital injection could be a good thing for a depressed stock in a very depressed industry.

How many other companies are going to get a similar injection? Fortunatley, there are a couple of very handy lists provided by the SEC of likely candidates for assistance from the government.

These lists were both released from the SEC as "emergency orders" to curtail or prevent short selling in some selected stocks. The first order was released in July 2008 with 19 stocks. The list was expanded substantially in September with another 700+ companies. Although the list is large, the message is clear that these are companies that the government is interested in staying in business.

From that list we can estimate those companies that are likely to receive government assistance and should be able to make good use of the dilution for future growth. I suggest screening the list for those still returning profits to the shareholders through a high ROE measure. These are probably going to be perceived as a "good risk" by the Treasury and are more likely to see a return in the future.

Including USB there are several other companies with strong ROE numbers. As 3rd quarter, 2008 earnings continue to be released you should be able to find several more strong performers. One way to take advantage of these depressed companies is through a diversified portfolio of LEAPs or long term calls. If the industry does start to grow, there could be some real winners.

- You can find out more about fundamental analysis and financial ratios like Return On Equity (ROE) here.

- Learn more about LEAPs options and how they can be used to speculate in the long term with less money.

In the video I will go into more detail about the banned short selling lists the SEC released and how to evaluate the companies within the list.

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