There has been no more disappointing sector to have invested in over the last year than the financial sector. New regulations, low trading volumes, a dismal housing market and sovereign debt concerns have all provided a very difficult environment for financial firms to operate in. However, valuations have come down to a point where investors can start to nibble with small positions in beaten down financial shares. Two stocks I like are in the Investment Services area.
Credit Suisse Group (NYSE:CS) - Credit Suisse Group AG, together with its subsidiaries, operates as a financial services company. The company operates in three segments: Private Banking, Investment Banking, and Asset Management. The Private Banking segment offers advisory services and a range of wealth management solutions, including pension planning, life insurance products, tax planning, and wealth and inheritance advice for the high-net-worth and ultra-high-net-worth individuals.
Overview – Turmoil in Europe, tax evasion talks with the United States government and poor trading volume have knocked over 20% off Credit Suisse’s market value over the past four months. Credit Suisse now sells in the bottom third of its five year valuation range based on P/S, P/E, P/B and P/CF. CS is valued at around 8 times this year’s projected earnings and just over 6 times 2012’s consensus EPS. Estimates have been raised for the next two quarter’s earnings reports over the past three months. Credit Suisse has an A rated balance sheet, is in a better capital position than most of its peers and yields a robust 4.1% dividend. It also is hovering right at a technical support level it bounced off of in December (see chart below). Credit Suisse trades for just over $35 a share. S&P has a price target of $56 on Credit Suisse.
Jefferies Group (JEF) - Jefferies Group, Inc., together with its subsidiaries, operates as a securities and investment banking company in the Americas, Europe, and Asia. It operates in two segments, Capital Markets and Asset Management. The Capital Markets segment provides engages in securities execution operations, such as sales, trading, and research in equities, equity-linked, and fixed income securities, including investment grade corporate bonds, high yield and distressed securities, government and agency securities, mortgage- and asset-backed securities, municipal bonds, convertible securities, bank loans, leveraged loans, and emerging markets debt, as well as offers prime brokerage services.
Overview – Jefferies has dropped approximately 25% from its high earlier in the year and is trading just over its 52 week low. At these levels, Jefferies is trading near the bottom of its five year valuation range based on P/E, P/S and P/CF. Jefferies is selling at just over 13 times this year’s expected earnings and around 11 times next year’s projected EPS. It has net insider buying over the past three months and has a projected 5 year PEG of less than 1. Jefferies is really filling the void both with its products, services and picking up personnel from Bear Stearns and Lehman. It yields 1.5% and is now selling at less than $20 a share. S&P has a price target of $25 on Jefferies.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in JEF over the next 72 hours.