Free cash flow is operating cash flow minus capital expenditures. FCF is the cash that a company made after paying out the money required to maintain and/or expand the business. Free cash flow enables a company to pursue acquisitions and growth initiatives, among other options. FCF may also allow a company to initiate or increase dividends.
Below I have screened the market for companies that are in the financial sector but not within the insurance industry. Amongst them, I looked for those that are trading below book value, with trailing earnings, while having a current price to free cash flow (FCF) under 5.
| Ticker | Name | Industry | Market Cap | P/B | P/FCF |
| Associated Banc-Corp | Regional - Midwest Banks | $2.31 B | 0.73 | 4.52 | |
| Capital One Financial Corp. | Credit Services | $22.23 B | 0.81 | 2.94 | |
| E*TRADE Financial Corporation | Investment Brokerage - National | $3.10 B | 0.79 | 2.26 | |
| Fifth Third Bancorp | Regional - Midwest Banks | $11.45 B | 0.94 | 3.03 | |
| KeyCorp | Money Center Banks | $7.71 B | 0.82 | 4 | |
| Morgan Stanley | Investment Brokerage - National | $35.30 B | 0.61 | 2.32 | |
| Principal Financial Group Inc. | Asset Management | $9.38 B | 0.92 | 3.02 | |
| SunTrust Banks, Inc. | Money Center Banks | $13.93 B | 0.72 | 3.22 |
Book value and free cash flow are two popular metrics amongst value investors, and also important metrics to insurers. These metrics can sometimes look deceptively undervalued when a company is susceptible to significant risk, or where a company’s underlying assets are overvalued and apt for re-evaluation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
