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In this article I will analyze five banking and finance stocks that are a must buy for 2012, as they have strong fundamentals and low price to earnings ratios (under 15), which should see the stock price continue to grow in value.

BBCN Bancoro Inc (BBCN)

BBCN has a market cap of $437.30 million. Its 52 week trading range has been between $5.57 and $10.75, and it is currently trading at around $9, with a price to earnings ratio of 14.15. It reported third quarter 2011 earnings of $43.19 million, a decrease from second quarter earnings of $44.98 billion. Third quarter net income was $9.82 million, a substantial increase from second quarter earnings of $6.32 million. It has quarterly revenue growth of 33.5% and a return on equity 7.83%.

One of BBCN’s closest competitors is SVB Financial Group (SIVB), which has a market cap of $2.04 billion and is currently trading at around $47, with a price to earnings ratio of 13.26. It has quarterly revenue growth of 26.80% and a return on equity of 14.04%. Based on these performance indicators BBCN is out performing SIVB. BBCN’s cash position has decreased in the last quarter. Its balance sheet showed $653.55 million in cash for the third quarter 2011, a decrease from $666.21 million cash in the second quarter. Its quarterly revenue growth of 33.50%, versus an industry average of 10.2%, and a return on equity of 7.83%, versus an industry average of 5.2%, indicates that it is out performing many of its competitors.

The earnings outlook for regional banks is looking increasingly negative as U.S. banks find their profits squeezed by weak loan demand and low lending rates in the third quarter and analysts have taken an even more pessimistic view about fourth quarter and early 2012 earnings. In a recent Thomson Reuters Proprietary Research Report; “analysts are estimating that financial companies in the Standard & Poor's 500 index will report earnings only 3.9% higher than a year earlier, instead of the 14.6% increase they forecast in August 2011.” This low forecast earnings growth rate does not bode well for earnings growth across the industry. However, despite the current difficult operating conditions and a drop in earnings, BBCN has increased its net income. In addition, despite the negative industry earnings outlook, BBCN’s recent increase in net profit and solid quarterly earnings growth demonstrate that it is capable of maximizing any future earnings growth prospects and sustaining profitability in a difficult operating environment. On this basis, BBCN is a good bet.

Creditcorp Ltd. (BAP)

Creditcorp has a market cap of $8.42 billion. Its 52-week trading range is $80.79 to $128.70, and at the time of writing it is trading at around $106, with a price to earnings ratio of 13.01. It reported third quarter 2011 earnings of $466 million, an increase from second quarter earnings of $441 million. Third quarter net income was reported at $170.90 million, a slight decrease from the second quarter net income of $174.17 million. It has quarterly revenue growth of 18.80%, a return on equity of 21.85% and pays a dividend with a yield of 1.8%.

One of Creditcorp’s main competitors is Banco Bilbao Vizcaya Argentaria (BBVA), which has a market cap of $42.33 billion and is trading at around $9, with a price to earnings ratio of 7.38. It has quarterly revenue growth of 4.5%, a return on equity of 12.44% and pays a dividend of 5.40%. Based on these indicators Creditcorp is outperforming BBVA.

Creditcorp’s cash position has decreased in the last quarter. The balance sheet showed $5.06 billion in cash for the third quarter, a decrease from $5.46 million cash in the second quarter. Its quarterly revenue growth of 18.8%, versus an industry average of 20.2%, and a return on equity of 21.85%, versus an industry average of 6.7%, indicates that it is outperforming many of its competitors.

The industry earnings for the banking industry remains poor in the U.S. and generally globally, with the European sovereign debt crisis triggering further volatility and drops in the prices of banking stocks. Many analysts have taken the view that the performance of Latin America’s banks is striking in contrast to European banks dealing with the current sovereign debt crisis and U.S. banks still trying to manage the legacy of bad loans and investments in toxic debt instruments. This can be attributed to the lack of maturity in the South American banking industry, which meant that most institutions avoided large exposures to bad loans and toxic debt based investments.

Therefore, it is clear there’s very little legacy to the global financial crisis and little if any exposure to the European sovereign debt crisis. Accordingly this bodes quite well for banks such as Creditcorp, which are also well positioned to take advantage of the growing demand for credit and savings products in South America. Despite Creditcorp’s marginally weaker balance sheet and slight decrease in net income I believe that it represents a solid investment based upon its strong performance indicators and the positive industry outlook.

BlackRock Inc (BLK)

BlackRock has a market cap of $31.03 million. Its 52-week trading range has been $137 to $209.77, and it is currently trading at around $173.50, with a price to earnings ratio of 13.69. Third quarter 2011 earnings of $1.87 billion were reported, a decrease from second quarter earnings of $2.35 billion. Third quarter net income was $595 million, a decrease from the second quarter net income of $619 million. It has quarterly revenue growth of 6.4% a return on equity of 9.5% and pays a dividend with a yield of 3.3%.

One of BlackRock’s closest competitors is UBS AG (UBS), which has a market cap of $46.27 billion and is trading at around $12, with a price to earnings ratio of 7.98. It has quarterly revenue growth of -3.7% and a return on equity of 10.57%. Based on this data BlackRock is outperforming UBS. BlackRock’s cash position has increased in the last quarter. The balance sheet showed $3.05 billion in cash for the third quarter 2011, an increase from $2.86 million in the second quarter. The net tangible assets have increased slightly to -$5.47 billion in the third quarter 2011, from -$5.81 billion in the second quarter. Its quarterly revenue growth of 6.4%, versus an industry average of 22.7%, and a return on equity of 9.5%, versus an industry average of 10.3%, indicates that it is out performing many of its competitors.

The earnings outlook for the asset management industry is currently quite subdued, although previously I have been more optimistic with regard to this industry. The key drivers for this change in outlook have been the European sovereign debt crisis, which has triggered a new round of instability in financial markets that has caused investors to focus on defensive assets such as gold, cash and bonds. In addition, a recent PWC report has found that increasing regulation and compliance requirements will increase the cost base of asset managers thus eating into their profit margins. And finally there is increased competition from foreign rivals and new entrants to the industry.

Despite the less than positive industry outlook coupled with BlackRock’s decreased earnings and net profit, I am of the firm view that the company has substantial upside and represents a solid investment opportunity. I have formed this view on the basis of its stronger balance sheet, coupled with its solid performance indicators and attractive dividend yield.

Nasdaq OMX Group Inc (NDAQ)

Nasdaq has a market cap of $4.63 billion, and is currently trading at around $26, with a price to earnings ratio of 10.90. Its 52-week trading range is $20.32 to $29.71. It reported third quarter 2011 earnings of $916 million, an increase from second quarter earnings of $805 million. Third quarter net income was $110 million, an increase from second quarter net income of $92 million. It has quarterly revenue growth of 25%, a return on equity is 8.68% and it does not pay a dividend.

Nasdaq’s main competitor is NYSE Euronext Inc (NYX), which has a market cap of $7.44 billion and is trading at around $28, with a price to earnings ratio of 11.63. It has quarterly revenue growth of 18.1%, a return on equity of 9.02% and pays a dividend with a yield of 4.30%. Based on these indicators Nasdaq is outperforming NYSE. Nasdaq’s cash position has declined in the last quarter. The balance sheet showed $3.47 billion in cash for the third quarter 2011, a decrease from $4.2 billion in the second quarter. The net tangible assets have increased, to -$1.72 billion in the third quarter 2011, from -$1.96 billion in the second quarter. Nasdaq’s quarterly revenue growth of 25%, versus an industry average of 14.6%, and a return on equity of 8.68%, versus an industry average of 11.3%, indicates that it is generating better revenue growth than many of its competitors but it is not delivering the same return on equity.

The earnings outlook for the diversified investments industry is currently quite negative. It appears that the global economic outlook has been derailed by the eurozone sovereign debt crisis. This has also triggered additional volatility in global stock markets, further pushing investors into defensive asset classes such as gold, bonds and cash. Once this is combined with the effects of rising inflation caused by government stimulus packages there will be less demand for investments in the market, as investors wait to see the how this impacts stock values, thus driving down trading volumes and subsequently earnings.

Despite the negative industry outlook I believe that Nasdaq represents a solid investment opportunity as it has reported increased earnings and net income in a difficult operating environment, as well as having a strong revenue growth performance indicator. This shows that it has the potential to continue building earnings and this will be maximized should there be an uplift in the economy.

Wells Fargo & Company (WFC)

Wells Fargo has a market cap of $140.45 billion and is currently trading at around $26.50. Its 52-week trading range is $22.58 to $34.25. It reported third quarter 2011 earnings of $21.26 billion, a decrease from second quarter earnings of $22.09 billion. Third quarter net income was $4.06 billion, a substantial increase from second quarter net income of $3.95 billion. It has a return on equity of 11.74%, quarterly revenue growth of 2.2% and pays a dividend with a yield of 1.8%.

One of Wells Fargo’s competitors is JP Morgan Chase & Co (JPM), which has a market cap of $126.20 billion and currently trades at around $33, with a price to earnings ratio of 7.08. It has quarterly revenue growth of 3.6% and a return on equity of 11.28%. Based on these indicators both companies are performing on a par.

Wells Fargo’s cash position improved in the last quarter. The balance sheet showed $373.08 billion in cash for the third quarter, an increase from $353.53 billion in the second quarter. Net tangible assets have increased to $112.73 billion in the third quarter 2011, from $111.63 billion in the second quarter. Wells Fargo’s quarterly revenue growth of 2.2%, versus an industry average of 20.2%, and a return on equity of 11.74%, versus an industry average of 6.7%, indicates that it is under performing many of its competitors.

The earnings outlook for U.S. banks is becoming increasingly negative as U.S. banks find their profits squeezed by weak loan demand, tight credit markets and low lending rates. However, Wells Fargo is one of the better performing U.S. banks based upon its solid increase in third quarter net income and stronger balance sheet.

Source: 5 Undervalued Financial Stocks To Buy For Profits In 2012