Financial stocks have been driving the market recently. Let’s analyze the value in five financial stocks. As always, use the list below as a starting point for your own due diligence.
Mastercard Incorporated (NYSE:MA) – MA is a global financial transaction processing services provider. It is currently trading at $320.68 a share which is very close to its 52 week high of $340.42. Unlike most of the stocks it has given stellar returns on year on year and is almost up 60%. In valuation terms it is trading at 15.39 times price to earnings with an excellent price to earnings growth ratio of 0.98. Operating margins of 51.51% is better than its competitor American Express Company (NYSE:AXP) with operating margins of 20.92% and comparable to Visa, Inc. (NYSE:V) with operating margins of 53.38%. Quarterly revenue growth of 22.10% is better than both AXP and V with growth of 18.00% and 14.40% respectively. Return on equity at 43.81% is also better than both AXP and V at 28.28% and 13.96%. Thus on valuation and performance perspective it is outperforming the peers. The strength of its financial is presented in this study which puts MA as a classic Buffet play. MA is in limelight and is one of the best performing stocks in US markets. MA is poised to grow with its global growth strategy.
Bank of America Corporation (NYSE:BAC) – BAC is the largest bank holding company in the United States, by assets, and the second largest bank by market capitalization. BAC has been in lot of news recently for Warren Buffett’s $5 billion investment. Buffett’s deal provides liquidity but is dilutive for current shareholders. BAC has long been ridden by litigation costs, legal liability, and regulatory action. BAC recognized $1 billion in 2009 and $2.6 billion in 2010 for litigation expenses. BAC's $8.5 billion settlement with Countrywide Financial mortgage securities holders is under lot of fire. Acquiring Countrywide was clearly a mistake. BAC paid $4 billion and but incurred $30 billion in costs. BAC operating margins are at 1.91% against Citigroup, Inc.'s (NYSE:C), JPMorgan Chase & Co.'s (NYSE:JPM) and Wells Fargo & Company 's (NYSE:WFC) operating margins of 20.41%, 39.91% and 34.58% respectively. BAC lost 45% of share price year on year and is currently trading near its 52 week low. But BAC is actually trading at a steep discount to its book value at a price to book value of 0.36. Overall BAC is risky but if you like to take risk it also has the potential to provide good returns.
Citigroup, Inc. (C) – C has the world's largest financial services network in the world, with presence in 140 countries with roughly 16,000 offices worldwide. Discover Financial Services (DFS) buys C’s $ 2.5 billion of student loans at purchase price of $ 2.48 billion. C has been strengthening its Latin America team to take advantage growth in that part of the world. C posted above consensus second quarter earnings of $1.09 per share. Citibank's global footprint is extraordinary and results were also encouraging but it still needs to strengthen its capital base. With current focus on increasing its mix of fee-based business will improve profitability in long term. Citi Capital Advisors acquired the CLOs business from DiMaio Ahmad Capital LLC with the aim to leverage its fixed income credit capability and infrastructure. As per this The Street article, C is a better investment than Bank of America Corporation (BAC) for its better capitalization, less mortgage-related risk, global presence and less regulatory pressure. This article points out the turnaround story of C and long term growth prospects. Withe the stock currently trading at $27.82 near its 52 week low, C can be value buy and it is trading at forward price to earnings ratio of 5.35. C is more beaten down because it is part of the hated sector and quoting at price to book value of 0.47. I think this company has lot of potential to grow your money in the future especially with management that is clear about growth and stability.
Wells Fargo & Company (WFC) – WFC is the fourth largest bank in the US by assets and the second largest bank by market capitalization. WFC trading at $23.98 a share and is at a marginal loss of 2% year on year. At its current price, it is enjoying a discounted forward price to earnings ratio of $6.96 and price to earnings growth ratio of $0.63. The company's operating margins stands at comfortable 34.58% and quarterly earnings growth of 28.90% is also good. WFC also provides a good dividend yield of 2.0% in the banking space. WFC is performing better than its peers and stands out as a value buy among financial stocks even after being available at a premium. WFC has done a great job of keeping away from regulators and has been providing robust performance for the past consecutive few quarters. From a cash flow standpoint, $11.036 billion flowed out of the company in 2010 but $8.015 billion flowed in the first half of 2011. I agree with this article's buy rating on WFC. It has redeemed $5.8 billion high yielding Trust Preferred (TruPs) and other securities which is a good move.
MetLife, Inc. (NYSE:MET) – MET is one of the largest global insurance, annuities, and employee benefit programs service provider, with 90 million customers in over 60 countries. MET is currently trading at $29.56 a share which translates into price to earnings ratio of 5.12 and price to earnings growth ratio of 0.59. Even the price to sales ratio of 0.52 and price to book ratio of 0.61 indicated the value in MET as current levels. Its operating margins of 12.22% are comparable to its peers Allianz SE (OTCQX:AZSEY), American International Group, Inc. (NYSE:AIG) and Prudential Financial, Inc. (NYSE:PRU) with operating margins of 8.26%, 13.62% and 9.50% respectively. Quarterly growth clearly stands out at 56.90% against AZSEY.PK, AIG and PRU at -1.60%, -8.90% and 11.50% respectively. MET replaced PRU as the largest annuity provider in US is a strong sign for its growth. MET has predicted that the annuity market should double by 2013. If the analyst in this case feels MET to be undervalued at $41 a share than at $29.56 a share provides you more reason to get into stock. MET provides a good dividend yield of 2.4% and is held many major hedge funds.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.