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The Financial Sector has significantly underperformed the market for a long time now. JP Morgan (NYSE:JPM) and Citicorp (NYSE:C) reported better than expected earnings last week. So, is now the time to start to pick up bargains in the beaten down financial sector? One stock that I like here because of valuation and the consistency of earnings is State Street Corporation (NYSE:STT) .

State Street Corporation, through its subsidiaries, provides various financial services and products to institutional investors worldwide. Its investment servicing business line offers services, such as custody, product-and participant-level accounting, daily pricing, and administration; master trust and master custody; recordkeeping; foreign exchange, brokerage, and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk, and compliance analytics.

This business line also provides shareholder services, including mutual fund and collective investment fund shareholder accounting. The company’s investment management business line offers a range of services for managing financial assets, which include investment management and investment research services comprising passive and active U.S. and non-U.S. equity and fixed-income strategies, and other related services, such as securities finance. State Street Corporation serves mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments, and investment managers.

10 reasons I like State Street at around $44 a share:

  1. The majority of its earnings come from stable earning streams like custody and asset management fees. This makes it less volatile than other financial firms who get their revenues from less stable sources.
  2. State Street sells for less than 12 times this year’s projected earnings and around 10 times 2012’s consensus EPS.
  3. It is hovering just above a price level that it has bounced off twice in the last six months (See Chart).
  4. [Click to enlarge]

  5. State Street is selling at the bottom quarter of five year valuation range based on Price to Book which is around 1.2. Buying well run financial stocks at low Price to Book ratios has historically been a profitable trade over the longer term. It also yields 1.6%.
  6. It has met or beat earnings estimates over the last four quarters and consensus estimates for 2011 and 2012 have risen over the last three months. S&P estimates earnings will increase by average of 12% annually over the next three years.
  7. It is projected to grow revenues in the high single digits for both 2011 and 2012 and has managed to have higher earnings over the past five years despite the financial crisis; one of the few financial firms able to make that claim.
  8. State Street has an A+ rated balance sheet and high institutional ownership of 87% of shares.
  9. It is growing smartly internationally, 42% of revenues now come from international markets, well on its way to establishing its goal of having over 50% of its revenues from international businesses.
  10. State Street should continue to benefit from the secular trend to outsource services State Street provides, cross selling existing customers and acquisitions to bring in new products.
  11. At $44 a share, State Street is considerably under analysts’ price targets. Credit Suisse has a price target of $53 a share, S&P is at $62 as is Jefferies.
Source: 10 Reasons State Street Is a 'Safe' Financial Stock to Own