It's been a tough year to like financial stocks. When the Fed is engaged in an interest rate hiking cycle, the financials tread water at best. I'd be willing to bet that I have sacrificed several percentage points of performance so far this year from holding a decent chunk of them.

That's the short-term view though, and the longer term view is the one I can't help but focus on. There are some great financial services companies out there and the valuations are way too low, below the market's 16 P/E in most cases. Over the next few weeks and months, they might continue to flounder, but if you look out 2 or 3 years these stocks are going to make people a lot of money, and they often pay huge dividends to boot.

Excuse me for keeping many specific names closely held (after all - this is a free site, as opposed to my paying clients) but I have written about Capital One (COF) on this blog before. That story remains very bullish and the stock trades at less than 10 times forward earnings.

Another one I have yet to mention is E*Trade (ET). Most people think of them purely as a discount brokerage, but they have branched out and now offer banking and lending services as well. In fact, only about a quarter of their revenue is generated from stock commissions. The shares sell for $12 each and trade at only 11 times 2006 earnings.