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With the advent of the Global Financial Crisis and the near collapse of many key players in the banking and Finance Industry due to toxic balance sheets composed of high risk assets such as Collateralized Debt Obligations (CDOs) and sub-standard loans many investors lost faith in the sector. This saw an avalanche of stock sales as investors sought safer investment opportunities. This has led to many companies in the sector being heavily undervalued by the market and in light of recent improvements in the economic outlook for the US combined with many Banking and Finance stocks trading at historical lows has led to an investor buying spree. This article will review five banking and finance stocks that have recently crossed the simple 200 day simple moving average to determine whether the high degree of investor interest is justified and if the stocks will continue to climb in value.

Affiliated Managers Group Inc (NYSE:AMG)

Affiliated Managers Group Inc has a market cap of $4.82 billion and a price to earnings ratio of 26.27. Its 52 week trading range is $70.27 to $113.00. At the time of writing, it is trading at around $193. It reported third quarter earnings 2011 of $413.80 million, a decrease from second quarter earnings of $462.30 million. Third quarter net income was $40.10 million, a decrease from second quarter net income of $45.50 million. It has quarterly revenue growth of 16.80%, a return on equity of 13.76% and doesn’t pay a dividend.

One of Affiliated Managers Group Inc closest competitors is National Financial Partners Corp (NYSE:NFP). National Financial Partners is trading at around $14 and has a market cap of $573.42 million. It has a price to earnings ratio of 14.96, quarterly revenue growth of 5.90% and a return on equity of 10.23%. It doesn’t pay a dividend. Based on these key performance indicators, it is under performing Affiliated Managers Group.

Affiliated Managers Group third quarter 2011 balance sheet showed cash of $323.30 million, an increase from second quarter cash of $311.20 million. It has quarterly revenue growth of 16.80%, versus an industry average of 22.70%, and a return on equity of 13.76%, versus an industry average of 10.30%. This indicates that it is outperforming many of its competitors, although it does not have the same earnings growth prospects as some of those competitors.

The earnings outlook for the Asset Management industry is currently quite positive with Moody's revising their overall outlook from negative to stable. This has occurred n the basis that asset managers have improved their earnings capability, as well as obtaining clarity on terms of regulatory reforms, which according to Moody's shows they are less exposed to reform than other sectors of the financial services industry. However, the current market volatility triggered by the Euro-zone crisis and weak US economy is affecting portfolio valuations and creating negative investor sentiment which is having some impact on the asset management value chain and affecting future profitability.

When the positive industry outlook is considered in conjunction with R Affiliated Managers Group strong performance indicators, as well as increases in net income and balance sheet cash in a difficult operating environment makes the company a solid investment opportunity. On this basis I understand the high investor interest in the company and rate it as a buy.

Banco De Chile (NYSE:BCH)

Banco De Chile has a market cap of $11.98 billion and a price to earnings ratio of 15.31. For a 52 week period its trading range has been $64.57 to $93.18. It is currently trading at around $83. The company reported second quarter earnings for 2011 as $697.30 million, a substantial decrease from first quarter earnings of $885.40 million. Second quarter net income was $242.00 million, a decrease from first half net income of $242.50 million. It has quarterly revenue growth of 7.50%, a return on equity of 25.97% and pays a dividend with a yield of 3.50%.

One of Banco De Chile’s closest competitors is Banco Santander-Chile (NYSE:SAN). Banco Santander-Chile currently trades at around $80 and has a market cap of $14.52 billion. It has a quarterly revenue growth rate of 2.20%, a return on equity of 22.82% and pays a dividend with a yield of 2.80%. Based on these performance indicators it is being marginally outperformed by Banco De Chile.

Banco De Chile’s cash position has improved, its second half 2011 balance sheet showed $4.48 billion in cash, a decrease from $4.65 billion in the first quarter. Its quarterly revenue growth of 7.50% is less than the industry average of 22.10%, and its return on equity of 25.97% is greater than the industry average of 9.40%. These indicators show that Banco De Chile is lagging behind many of its competitors in earnings growth but it has a solid management team that has a strong handle on costs and is maximizing the return on equity.

The earnings potential of companies generating revenue from the banking sector remains poor in the short term due to tight credit markets and the poor economic climate. However, it appears that many South American Banks have weathered the global financial crisis and the poor global economy far better than many other global banks. This can be partly attributed to the lack of maturity in the banking and finance industry in South America, which saw many banks avoid substantial exposure to investments in collateralized debt instruments (CDIs) and have a reduced exposure to poor quality loans.

While the industry outlook is improving it is difficult to understand the high degree of investor interest in Banco De Chile. Despite its strong return on equity it has reported declining earnings and net income as well as cash holdings. On this basis I rate the company as a hold.

Jones Lang LaSalle Incorporated (NYSE:JLL)

Jones Lang LaSalle Incorporated has a market cap of $2.68 billion and has a price to earnings ratio of 16.70. For a 52 week period its trading range has been $46.01 to $107.84. It is currently trading at around $62. The company reported third quarter earnings 2011 as $903.21 million, an increase from second quarter earnings of $845.29 million. Third quarter net income was $33.88 million, a decrease from second quarter net income of $44.10 million. The company is achieving quarterly revenue growth of 27.50%, a return on equity of 10.43%, and pays a dividend with a yield of 0.50%.

One of Jones Lang LaSalle Incorporated closest competitors is American Spectrum Realty Inc (NYSEMKT:AQQ). American Spectrum Realty is currently trading at around $11.50. It has a market cap of $33.82 million and a price to earnings ratio of 38.68. It has quarterly revenue growth of 134.50%, a return on equity of -30.73%, and doesn’t pay a dividend. Based on these performance indicators it is being outperformed by Jones Lang LaSalle, despite its high quarterly growth rate.

Jones Lang LaSalle’s cash position has declined, for the third quarter 2011 its balance sheet showed $85.67 million in cash, a decrease from the second quarter of $95.61 million. Jones Lang LaSalle’s quarterly revenue growth of 27.50%, versus the industry average of 31.70%, and a return on equity of 10.43%, versus an industry average of 15.30%, indicates it is marginally underperforming many of its competitors.

The overall outlook for the Property Management industry is subdued primarily due to the slow economic outlook and subdued demand for commercial properties as companies seek to cut costs in a difficult operating environment. Grubb and Ellis have taken the view that for commercial real estate, this is an implied strong demand from investors due to low interest rates but only a slow improvement in leasing market fundamentals.

Due to the subdued industry outlook combined with Jones Lang LaSalle reporting decreased net income and reduced cash holdings, I feel there are better investment opportunities in the market and rate the company as a hold.

Allied World Assurance Company Holdings, AG (NYSE:AWH)

Allied World Assurance Company Holdings has a market cap of $2.32 billion and a price to earnings ratio of 13.53. Its 52 week trading range has been $49.00 to $65.70. It is currently trading at around $61. It reported third quarter 2011 earnings of $323.41 million, a decrease from second quarter earnings of $466.55 million. Third quarter net income was -$10.97 million, a substantial decrease from second quarter net income of $93.80 million. Allied World Assurance Company Holdings has quarterly revenue growth of -44.10%, a return on equity of 5.81%, and pays a dividend with a yield of 2.40%.

One of Allied World Assurance Company Holdings closest competitors is Endurance Specialty Holdings Ltd (NYSE:ENH). Endurance Specialty Holdings Ltd. currently trades at around $38 and has a market cap of $1.55 billion. It has a price to earnings ratio of 72.98, quarterly revenue growth of 8.10%, a return on equity of 1.62% and pays a dividend with a yield of 3.20%. Based on these performance indicators it I outperforming Allied World Assurance Company Holdings.

Allied World Assurance Company Holdings cash position has substantially improved, the third quarter balance sheet showed $902.57 million in cash, compared to $807.66 million for the second quarter. Allied World Assurance Company Holdings quarterly revenue growth rate of -44.10% is substantially less than the industry average of 2.70%, and its return on equity of 5.81%, is less than the industry average of 7.90%. This indicates that it is underperforming many of its competitors.

The earnings outlook for the Property and Casualty Insurance industry is negative primarily due to the poor economy which has led many consumers and businesses focusing on reducing costs through removing what they perceive to be non-necessary expenditure. This as Ernst and Young have highlighted has led to a reduction in net -premiums for property-casualty insurers, fostering declines in industry revenues and earnings.

When this is considered in conjunction with Allied World Assurance Company Holdings poor performance indicators and decline in net income leads me to believe that the company does not have strong future growth prospects and that there are better investment opportunities in the market. Accordingly I rate the company as a sell.

PNC Financial Services Group Inc (NYSE:PNC)

PNC Financial Services Group Inc has a market cap of $28.25 billion and a price to earnings ratio of 8.54. Its 52 week trading range is $42.70 to $65.19. It is currently trading at around $54. It reported third quarter earnings 2011of $3.90 billion, a decrease from second quarter earnings of $4.00 billion. Third quarter net income was $826.00 million, a decrease from second quarter net income of $888.00 million. PNC Financial Services Group Inc has quarterly revenue growth of 8.10%, a return on equity of 9.72% and pays a dividend with a yield of 2.70%.

One of PNC Financial Services Group’s closest competitors is Home Banc Shares Inc (NASDAQ:HOMB). Home Banc Shares currently trades at around $24 and has a market cap of $681.32 million. It has a price to earnings ratio of 28.63, quarterly revenue growth of 28.80% and a return on equity of 5.57%. It pays a dividend with a yield of 1.30%. Based on these key performance indicators it is outperforming PNC Finance Services Group.

PNC Financial Services Group third quarter 2011 balance sheet showed cash of $11.52 billion, a decrease from first quarter 2011 of $12.80 billion. PNC Financial Services Group quarterly revenue growth of 8.10%, versus an industry average of 20.20%, and a return on equity of 9.72%, versus an industry average of 6.70%, indicates that from an earnings growth perspective it is underperforming many of its competitors although it is deriving a better return on equity than many of those competitors.

The industry outlook for the Banking industry is quite subdued primarily due to tight credit markets and the poor economic climate. These factors when considered in conjunction with poor consumer sentiment have had a direct effect on revenues and earnings growth for industry participants.

When this is considered in conjunction with the company’s poor performance indicators, decreased earnings, net income and cash holdings leads me to believe there are better investment opportunities in the industry. On this basis I rate the company as a hold.

Source: 5 Financial Stocks Investors Are Buying Like Crazy