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Doug Kass: Financials Now Attractive for First Time in Months

Published: Friday, 13 Aug 2010 | 1:48 PM ET

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By: Drew Sandholm
Producer

Halftime Report

As investors seek direction in an unforgiving and often unpredictable market, famed strategist Douglas Kass said Friday that the Standard & Poor's 500 Index [.SPX Loading... () ] is trading "at equal distance" between its low at 1020 and its high at 1150.

"We're starting to tip toward more favorable value in terms of upside," said Kass, founder and president of Seabreeze Partners, adding that he also sees strength in financials.

The banks "appear to be stabilizing for the first time in months," said Kass. The strategist then revealed he's been buying shares of both Bank of America [BAC Loading... () ] and Citigroup [C Loading... () ]. He also likes insurance companies right now, including Prudential Financial [PRU Loading... () ] and Lincoln National [LNC Loading... () ].

The money manager didn't further explain why he likes the banks, but Kass seems to have a knack for reading the market. Less than a week before the S&P 500 hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom. On July 6, 2010, he said the market had made its lows for the year and so far, that has also proved to be true.

It is important to note that although Kass likes a handful of banks, he does not think the market has unlimited upside right now.

"I think the market's upside and the economy's progress is basically constrained and mired by this vortex of liquidity, tax and regulatory traps," said Kass. "It's undermining confidence. It's hurting valuations and it won't change until the administration adopts a new playbook."

For investors looking to put money to work in the market, Kass suggests dividend paying stocks. Low interest rates are helping companies like IBM [IBM Loading... () ], who are borrowing for 1 percent for two years or McDonald's [MCD Loading... () ], which is borrowing at 3.5%. Why would you lend to McDonald's at 3.5%, when you could buy common stock in the company and get a dividend yielding 3.1% that's growing at 8-10% a year, he asked.

Watch the video to see the full interview with Kass.

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CALL THE CLOSE

Joe Terranova of Vitrus Investment Partners recommends buying Red Hat [RHT Loading... () ], a Raleigh, N.C.-based technology company. He calls it "one of the best performing stocks this year."

"I'm staying hedged," says Patty Edwards of Storehouse Partners.

"Below 1088, I'm still a seller," says Steve Grasso of Stuart Frankel.

Pete Najarian of optionMONSTER.com thinks you can buy into this market.

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Trader disclosure: On Aug 13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Pete Najarian owns (CSCO) calls; Pete Najarian owns (V) call spread; Pete Najarian owns (TCK); Pete Najarian owns (CNI); Pete Najarian owns (SCCO); Grasso owns (ASTM), (ABK), (BA), (BAC), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Terranova owns (AKAM), (BAX), (FCX), (MOS), (PFE), (SU), (XBI); Terranova owns (GLD) Calls

For Patty Edwards
Edwards owns (CSCO) for clients
Edwards owns (BAC) for clients
Edwards owns (C) for clients
Edwards owns (JPM) for clients
Edwards owns (TTM)
Edwards owns (F) for clients
Edwards owns (VXX) for clients
Edwards owns (SPY) for clients
Edwards owns (QQQQ) for clients

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (DRYS)
Virtus Investment Partners own more than 1% of (EXR)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (XLK)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)

For Steve Grasso
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)

For Doug Kass
***No Disclosures***

Topics:Fast Money | Stock Market | Stock Picks

Sectors:Banks | Financial Services

Companies:Red Hat, Inc. | Lincoln National Corp | Prudential Financial Inc | Citigroup Inc | Bank of America Corp