Diversified and secured assets with a good mix of fixed income and capital appreciation, growth prospects and fundamentals, financial service firms make up a good share of value stocks in the market today. From insurance to savings and investment banks the five companies below show tantalizing growth prospects and strong fundamentals in favor of a buy recommendation.
CNinsure Inc. (CISG)
Following a string of acquisitions last year, this China-based small-cap intermediary underwriter and value-added service provider with a market capitalization of $645 million and sales over $200 million posted returns well above analyst expectations over the last two quarters. All along outperforming the industry by twice as much with return on investment above 15 and price trends gaining strength over the S&P 500 (SPY) over the last few months. The price to earnings ratio of 9.51 is very favorable in conjunction with good consistent earnings and growth rates over the last three to four years in excess of 45%, even if free cash flows and net cash position aren’t over the moon.
The long-term debt management and current ratio is sound enough for serious contention as a “fast-grower”, with equity playing a significant role in the financing of the company and a sustained profit margin, currently at 27.6%, offering great shareholder returns. Pre-tax margins are particularly applause-worthy at 33.57% to back-up analyst predictions of strong EPS growth for the future. With a low payout ratio currently, watch for this one to rake in the dividends when it so pleases.
Fifth Street Finance Company (FSC)
With two years recently commemorated on the NYSE and a healthy market cap of $662 million, this specialty financing company has funded a number of venture capital projects creating a relatively stable portfolio of earnings with a balanced mix of interest and capital appreciation on the books. If analyst expectations are anything to go by (and they have been over the last few quarters), than earnings are set to increase further. The strong earnings per share growth of nearly 57% is even more favorable in the light of the 9.68 price to earnings ratio, indicating a strong reason to buy.
While some dub the growth rate too high for sustained growth, it is worth noting the strong reliance on equity to finance its operations and the consistency of its earnings so far, with a widening spread on profit margins, currently at 31.78%, almost three times the level when it first hit the market. But it’s not as hard to back your decision to invest given that institutions own more than 55% of the stock, despite the small sales ticket and average returns in line with the market
Investors Bancorp Inc. (ISBC)
With a market capitalization of nearly $1.5 billion, this holding company for Investors Savings Bank specializing in residential mortgage loans and consumer oriented banking, boasts good earnings quality with most of its assets secured in a choice sector (Savings and Loans/Savings Banks). Together with an apparently stable annual earnings growth of 38.59% and a price to equity ratio of nearly 20 the stock is strongly set for a buy recommendation.
Coupled with a price near its 52-week high just before the recent setbacks giving way for a high potential to rise, nearly a quarter of its stock is owned by institutions. Having a trailing 12-month sales figure just under the corporate threshold of $500 million and double digit growth, it won’t be long before corporate treasuries see the consistent profit margins and free cash per share at 0.51 strong enough to bear any losses. Earnings do not appear inflated and intentions to dilute earnings is not apparent with the number of average shares outstanding remaining more or less consistent at 109 million.
Maiden Holdings Ltd. (MHLD)
A holding company based in Bermuda for the last four years, this holding company has $3.3 billion in assets and shareholder equity of $759.9 million, operating through A- rated subsidiaries to provide customized re-insurance services to small and midsize insurance companies in the US and parts of Europe. Even with operating and net profit margins not something to write home about and one of the lowest earnings multiples in the market (though its price to book ratio fares a lot better), cash dividend rose by 14% over the last quarter to $0.08 per share of common stock. Not surprisingly, the quality of its earnings are a lot better given that it does not write any primary insurance products and has positive free cash flows of $1.83 per share.
The cash position of the company has strengthened over the last few years, with better working capital management coming into play to bring up the level of cash to $96.2 million. With the absence of any moves to dilute earnings by increasing the number of average shares outstanding, and a small Daily Dollar Volume (DDV) under institutional radars, Gurus such as the Motley Fool recommend big growth opportunities reading into the smaller numbers.
Pennantpark Investment Corp (PNNT)
An investment company with a suitably diversified portfolio of fixed earnings and capital appreciation with strong credit performance shows significant price advantage and earnings growth, with the numerator for the price to earnings and earnings growth ratio lower than others. Currently a strong buy and a solid dividend payout track record, this stock has seen a growth rate of 11.15% far above the industry average of 6.7%, generally exceeding analyst expectations over the last two or three quarters. With 66.17% sales growth and nearly 50% institutional ownership for this small cap stock with a total market capitalization of $430.4 million, this one looks like it’s ready to make the charts.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.