8 Financial Sector Stocks That May Follow The Upside Trend

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Includes: AFSI, AGII, AIG, BPOP, EJ, NAVG, NNI, OZM
by: Kapitall

Summary

Financial stocks have beaten earnings estimates for a variety of reasons this quarter.

To develop this trend we screened for financial stocks with four straight quarters of positive, estimate-beating earnings reports, with an average surprise of at least 5%.

We further screened for stocks that are undervalued with a price/earnings to growth (PEG) ratio below 1.

Blackstone Group (NYSE:BX) released its second-quarter results Thursday morning, and the company's earnings of $1.15 a share surpassed the average analyst earnings estimate of $0.71 a share. In fact, the New York-based private equity firm's earnings were 61.97% higher than the estimate.

Blackstone's solid second-quarter earnings comes on the heels of other estimate-beating performances from Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), and Morgan Stanley (NYSE:MS).

All six companies had different reasons for reporting better-than-expected net income. Blackstone's largest buyout fund passed a benchmark for investment performance that allowed the company to finally collect a profit.

Bank of America, Citigroup, and JPMorgan all reported weaker second-quarter earnings than a year earlier due to legal charges, but Bank of America's net income benefited from higher revenue from stock trading while increases in lending and commercial banking helped Citigroup and JPMorgan's profits. Goldman Sachs saw higher revenue from its investment banking and investing and lending divisions, while Morgan Stanley's money management business played a crucial role in the company's earnings.

These estimate-beating earnings inspired us to look for investment opportunities amongst financial sector stocks that have yet to report earnings. We began with a group of stocks that have a history of positive earnings surprises. This means that they've had four straight quarters of positive, estimate-beating earnings reports, with an average surprise of at least 5%.

Sticking to our earnings theme, we screened for stocks that are undervalued with a price/earnings to growth (PEG) ratio below 1. This valuation ratio is calculated by dividing a stock's price-to-earnings (P/E) ratio by its expected annual earnings per share (EPS) growth. Therefore, the higher the stock's earnings growth, the lower its PEG ratio. When a stock's PEG is under 1, it is typically considered undervalued.

For our final screen, we decided to incorporate analyst stock recommendations since they're the ones supplying estimates for company's earnings. We looked for stocks with an average analyst recommendation of "buy" or better.

Click here for the full, interactive chart.

1. AmTrust Financial Services, Inc. (NASDAQ:AFSI): Operates as a multinational specialty property and casualty insurance company in the United States and internationally. Market cap at $3.14B, most recent closing price at $41.43.

In Jun 2013: Reported EPS at 0.78 vs. estimate at 0.69 (surprise of 13%). In Sep 2013: Reported EPS at 0.83 vs. estimate at 0.73 (surprise of 13.7%). In Dec 2013: Reported EPS at 1.03 vs. estimate at 0.79 (surprise of 30.4%). In Mar 2014: Reported 1.24 vs. estimate at 0.91 (surprise of 36.3%. [Average earnings surprise at 23.35%].

The average analyst earnings estimate for the current quarter is $0.99. In the same quarter a year ago, the company's earnings were $0.78 per share.

AmTrust Financial Services is reporting its second-quarter earnings on Thursday, August 7th.

PEG at 0.72.

2. Argo Group International Holdings, Ltd. (NASDAQ:AGII): Underwrites specialty insurance and reinsurance products in the property and casualty market worldwide. Market cap at $1.34B, most recent closing price at $51.60.

In Jun 2013: Reported EPS at 0.74 vs. estimate at 0.73 (surprise of 1.4%). In Sep 2013: Reported EPS at 0.8 vs. estimate at 0.68 (surprise of 17.6%). In Dec 2013: Reported EPS at 0.82 vs. estimate at 0.76 (surprise of 7.9%). In Mar 2014: Reported 0.93 vs. estimate at 0.75 (surprise of 24%. [Average earnings surprise at 12.72%].

The average analyst earnings estimate for the current quarter is $0.81. In the same quarter a year ago, the company's earnings were $0.74 per share.

Argo Group is reporting its second-quarter earnings on Tuesday, August 5th.

PEG at 0.94.

3. American International Group, Inc. (NYSE:AIG): Operates property and casualty insurance networks worldwide and conducts activities in the U.S. life insurance and retirement services industry. Market cap at $79.64B, most recent closing price at $55.04.

In Jun 2013: Reported EPS at 1.12 vs. estimate at 0.85 (surprise of 31.8%). In Sep 2013: Reported EPS at 0.96 vs. estimate at 0.95 (surprise of 1.1%). In Dec 2013: Reported EPS at 1.15 vs. estimate at 0.96 (surprise of 19.8%). In Mar 2014: Reported 1.21 vs. estimate at 1.07 (surprise of 13.1%. [Average earnings surprise at 16.45%].

The average analyst earnings estimate for the current quarter is $1.06. In the same quarter a year ago, the company's earnings were $1.12 per share.

AIG is expected to report its earnings on Monday, August 4th.

PEG at 0.85.

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4. Popular, Inc. (NASDAQ:BPOP): Provides a range of retail and commercial banking products and services primarily to corporate clients, small and middle size businesses, and retail clients in Puerto Rico and Mainland United States. Market cap at $3.55B, most recent closing price at $34.57.

In Jun 2013: Reported EPS at 3.18 vs. estimate at 0.68 (surprise of 367.6%). In Sep 2013: Reported EPS at 2.22 vs. estimate at 0.7 (surprise of 217.1%). In Dec 2013: Reported EPS at 1.57 vs. estimate at 0.65 (surprise of 141.5%). In Mar 2014: Reported 0.79 vs. estimate at 0.66 (surprise of 19.7%. [Average earnings surprise at 186.48%].

The average analyst earnings estimate for the current quarter is $0.70. In the same quarter a year ago, the company's earnings were $3.18 per share.

Popular will report its second-quarter earnings on Thursday, July 24th.

PEG at 0.89.

5. E-House (China) Holdings Limited (NYSE:EJ): Operates as a real estate services company in China. Market cap at $1.35B, most recent closing price at $9.77.

In Jun 2013: Reported EPS at 0.11 vs. estimate at 0.06 (surprise of 83.3%). In Sep 2013: Reported EPS at 0.2 vs. estimate at 0.14 (surprise of 42.9%). In Dec 2013: Reported EPS at 0.26 vs. estimate at 0.22 (surprise of 18.2%). In Mar 2014: Reported 0.08 vs. estimate at 0.04 (surprise of 100%. [Average earnings surprise at 61.1%].

The average analyst earnings estimate for the current quarter is $0.14. In the same quarter a year ago, the company's earnings were $0.11 per share.

E-House is expected to report its second-quarter earnings on Friday, August 15th.

PEG at 0.94.

6. Navigators Group Inc. (NASDAQ:NAVG): Engages in the underwriting and management of property and casualty insurance in the United States, the United Kingdom, Belgium, and Sweden. Market cap at $916.52M, most recent closing price at $64.71.

In Jun 2013: Reported EPS at 0.82 vs. estimate at 0.78 (surprise of 5.1%). In Sep 2013: Reported EPS at 1.6 vs. estimate at 0.74 (surprise of 116.2%). In Dec 2013: Reported EPS at 1.13 vs. estimate at 0.91 (surprise of 24.2%). In Mar 2014: Reported 0.99 vs. estimate at 0.9 (surprise of 10%. [Average earnings surprise at 38.88%].

The average analyst earnings estimate for the current quarter is $1.08. In the same quarter a year ago, the company's earnings were $0.82 per share.

Navigators will report its second-quarter earnings on Thursday, August 7th.

PEG at 0.80.

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7. Nelnet Inc. (NYSE:NNI): Focuses on providing fee-based processing services, and education-related products and services in the areas of loan financing, loan servicing, payment processing, and enrollment services. Market cap at $1.96B, most recent closing price at $42.20.

In Jun 2013: Reported EPS at 1.53 vs. estimate at 1.25 (surprise of 22.4%). In Sep 2013: Reported EPS at 1.49 vs. estimate at 1.36 (surprise of 9.6%). In Dec 2013: Reported EPS at 1.51 vs. estimate at 1.39 (surprise of 8.6%). In Mar 2014: Reported 1.56 vs. estimate at 1.48 (surprise of 5.4%. [Average earnings surprise at 11.5%].

The average analyst earnings estimate for the current quarter is $1.44. In the same quarter a year ago, the company's earnings were $1.53 per share.

Nelnet is expected to report its second-quarter earnings on Thursday, August 7th.

PEG at 0.38.

8. Och-Ziff Capital Management Group LLC (NYSE:OZM): Publicly owned investment manager. Market cap at $2.34B, most recent closing price at $13.57.

In Jun 2013: Reported EPS at 0.16 vs. estimate at 0.14 (surprise of 14.3%). In Sep 2013: Reported EPS at 0.27 vs. estimate at 0.2 (surprise of 35%). In Dec 2013: Reported EPS at 1.15 vs. estimate at 0.83 (surprise of 38.6%). In Mar 2014: Reported 0.25 vs. estimate at 0.16 (surprise of 56.3%. [Average earnings surprise at 36.05%].

The average analyst earnings estimate for the current quarter is $0.18. In the same quarter a year ago, the company's earnings were $0.16 per share.

Och-Ziff is expected to report its second-quarter earnings between Monday, July 28th and Friday, August 1st.

PEG at 0.44.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.