In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the consensus, when the consensus opinion appears to be wrong. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains.
Eurozone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on holdings of Greek government bonds as part of a plan to lower Greece's debt burden and try to contain the two-year-old eurozone crisis. This bodes well for bank stocks going forward. We posit this is the turning point the banking sector has been looking for. The market is clearly at an inflection point. To open a position you must have courage in your convictions; just remember, fortune favors the bold. A market correction provides opportunity to buy great names at a discount price.
The banking stocks discussed in this article are mid cap or better stocks with PEG Ratios of one or less, above industry average returns on equity and above industry average profit margins over the trailing twelve months. Additionally, these stocks have great stories and positive catalysts for future growth. A company's earnings per share is conceivably the most important statistic to understand before investing in a stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information.
When a company is profitable, and has money to give back to shareholders in the form of earnings, the company has two basic options: First, it can distribute some of the earnings in the form of a stock dividend. Factor this in with the fact that historically, dividend paying stocks have outperformed non-dividend paying stocks, and you have a recipe for outstanding returns. After the precipitous drop in the Dow in 2008, the high-dividend payers were the first to recover. Whatever is not paid out in the form of dividends is placed into the retained earnings, which then become a source of capital that can be used to help support the growth of a company.
The PEG ratio is a broadly used indicator of a stock's prospective worth. It is preferred by numerous analysts over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. Many financiers use 1 as the cut-off point for PEG ratios. A PEG of 1 or less is believed to be favorable. As Warren Buffett would say, "price is what you pay; value is what you get."
These are bullish indicators regarding a stock's possible future performance. Moreover, most of these stocks are trading well below consensus analysts’ estimates. Several have recent upgrades and positive analyst comments.
There may be more volatility in front of us, nevertheless, this may be a good point to start a quarter position in these amazing buying opportunities or at least put them on your watch list. The seven stocks are: Wells Fargo & Company (WFC), JPMorgan Chase & Co. (JPM), Citigroup, Inc. (C), The Bank of New York Mellon Corporation (BK), Capital One Financial Corp. (COF), State Street Corp. (STT) and Discover Financial Services (DFS).
Below are two tables with detailed statistics regarding each company’s current summary information and fundamental information, followed by a brief review of each company, detailed current analysts' estimates and up/downgrade activity, followed by a chart of the company's key statistics. Nonetheless, this is only the first step in finding winners for your portfolio. Please use this as a starting point for your own due diligence.
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Wells Fargo & Company, through its subsidiaries, provides retail, commercial, and corporate banking services primarily in the United States. The company is trading below analyst estimates. Wells Fargo has a median price target of $32 by 29 brokers and a high target of $41. The last up/downgrade activity was on Aug 9, 2011, when FBR Capital upgraded the company from Market Perform to Outperform.
JPMorgan Chase & Co., a financial holding company, provides various financial services worldwide. The company is trading significantly below analysts' estimates. JPMorgan has a median price target of $47 by 30 brokers and a high target of $58. The last up/downgrade activity was on May 20, 2011, when Stifel Nicolaus initiated coverage on the company with a Hold rating.
Citigroup, Inc., a global financial services company, provides consumers, corporations, governments and institutions with a range of financial products and services. The company is trading significantly below analysts' estimates. Citigroup has a median price target of $44 by 22 brokers and a high target of $55. The last up/downgrade activity was on Jun 21, 2011, when Standpoint Research initiated coverage on the company with a Buy rating.
The Bank of New York Mellon Corporation, a financial services company, provides various products and services worldwide. The company is trading significantly below analysts' estimates. Bank of New York Mellon has a median price target of $26 by 21 brokers and a high target of $33. The last up/downgrade activity was on Nov 11, 2010, when Jefferies initiated coverage on the company with a Hold rating.
State Street Corporation, through its subsidiaries, provides various financial services and products to the institutional investors worldwide. The company is trading below analysts' estimates. State Street has a median price target of $47 by 21 brokers and a high target of $57. The last up/downgrade activity was on Nov 11, 2010, when Jefferies initiated coverage on the company with a Buy rating.
Discover Financial Services, together with its subsidiaries, operates as a credit card issuer and electronic payment services company primarily in the United States. The company is trading below analysts' estimates. Discover Financial has a median price target of $30 by 19 brokers and a high target of $35. The last up/downgrade activity was on Aug 12, 2011, when RBC Capital Markets upgraded the company from Outperform to Top Pick.