Two Reasons To Buy Sallie Mae Before Everybody Else Does

Two reasons to buy Sallie Mae ((SLM) $42.86):

First, the odds on your money are pretty good here in the low forties $42.86; Stop loss at 40.50, and upside as much as 15% to 20% through next July. You may get it a dollar or two cheaper, but don’t wait since the short covering rally in financials has begun in earnest, and all boats will be lifted once Citigroup ((C): $35.00) makes a definitive bottom this week (see my post on short covering in financials from Tuesday).

Second, the chance that a bid for the company will be resuscitated would make purchasing this stock worthwhile, even if the deal was priced well below the original offer.

Sallie Mae, a favorite short of mine (2003 through 2005) seems like a low risk call option, with downside protection in the way of a multi-year low, and plenty of support provided by the two factors mentioned above. Of course, you could always pair this long with a short on First Marblehead ((FMD): $34.99), which offers little upside (lot of stock overhang up here), and, from my perch, a stock worth something in the ballpark of mid to low 20's.