16 Financial Stocks That May Be Bucking the Negative Trend
Alan Brochstein screens for financial stocks with upside potential
So far in 2011, the financial sector has been a real laggard. In fact, through the end of May, it's the only sector that has declined since year-end. Specifically it's down about 0.8%, while the S&P 500 price has increased 7%. The main culprits have been the large banks, with several down more than 10%. While the average stock in the sector is under pressure, I believe those averages may mask some underlying strength.
The challenges of the large financial institutions aren’t necessarily the same ones that smaller financial institutions face. In fact, many of the challenges, like tougher disclosure or heightened regulatory scrutiny, may benefit the smaller players. While it’s easy for investors to dismiss the sector, as it hasn’t been a good performer in several years, there could be some opportunities lurking there. With that in mind, I devised a screen to identify financials that are growing earnings, enjoying rising stock prices and have what appear to me to be reasonable valuations. Here is what I did:
• Market Cap > $1 billion
• YTD Price > +3%
• EPS (last 4 quarters) >+20%
• Estimate Revisions: Stable
• P/E < 15X
The screen generated a first cut of 16 candidates to consider further:
Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Alan Brochstein maintains a business relationship with TradeKing.
[click the image above to enlarge it]
As always, this screen is for illustrative purposes only and doesn’t constitute a recommendation. You should always do your own research and due diligence before investing.
The list is sorted by P/E, with the lower valuation stocks at the bottom. While our minimum size was $1 billion, note that almost 1/3 of the list is larger than $10 billion. On the far right, I included the sub-sector of the industry. While clearly it is “banks” that are weighing down the sector in general, there is only one “bank” on this list, and it is a rather small one (FNB, based in Pennsylvania). Over half the list falls under the header “Consumer Finance”, which ties in with the comment I made above regarding the changing regulatory environment as well as the willingness of larger institutions to lend. For example, EZCorp (EZPW) is a pawn broker that also provides loans such as payday or auto title loans and addresses an unmet need. Perhaps non-traditional providers of consumer finance aren't the first thing that comes to mind when considering financial services, but they do seem to merit attention.
Another area that seems overly represented on the list is “Asset Management”. In my model portfolios, I own Franklin Resources (BEN), which is the largest publicly-traded asset manager. Investors in BEN (like me) are attracted by the fact that asset-managers like BEN have reduced credit risk and may be poised for potential growth for demographic reasons.
Another area that seems overly represented on the list is “Asset Management”. In my model portfolios, I own Franklin Resources (BEN), which is the largest publicly-traded asset manager. Investors in BEN (like me) are attracted by the fact that asset-managers like BEN have reduced credit risk and may be poised for potential growth for demographic reasons.
In short, while “banks” may be under pressure, it may make sense to investigate other financial companies. In this case, we have identified more than a dozen fairly large companies whose stocks are performing well and who have reasonable valuations and seemingly good fundamentals. As is always the case, screening is just the beginning of a process to find good stocks. I hope this gets you started!
Regards,
Alan Brochstein
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator
Disclosure: Alan Brochstein is long BEN in model portfolios at Invest By Model at this writing.
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Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Alan Brochstein maintains a business relationship with TradeKing.
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