Maiden Holdings, Ltd. (MHLD) – With a market capitalization under $650 million, MHLD is well positioned for significant growth. Compared with close competitor Hannover R (HVRRY.PK) with a market capitalization of over $6 billion, the company is not as attractive as a pure value play, but the overall strength of its financial metrics is compelling. Where MHLD has a price-to-earnings ratio of 21.3, HVRRY.PK has a trading multiple of 8.2. When growth is considered, however, MHLD has a price-to-earnings over growth (PEG) ratio of 0.65 relative to a negative growth rate for HVRRY.PK. Typically, a reading under 1.0 is considered attractive, pointing to strong growth play. On an operating basis, MHLD has an operating margin of 6.7%; HVRRY.PK has an operating margin of 6.8% and the industry average is 5.8%. Additionally, the stock has a dividend yield of 3.8%, so the stock offers a nice income play as well. Finally, with no clear short-term resistance until the $9.70 price level, the stock should be able to go higher; if this resistance level is broken, there is significant upside.
PannantPark Investment Co. (PNNT) – Another micro-capitalization stock, with a total market capitalization under $500 million, this stock has multiple attractive factors. With a dividend yield of 10.3%, the stock is a great income play, which, when combined with the growth profile of the stock, is very attractive. While there appears to be some resistance around the $11 price level, if the stock breaks through this level, there next resistance level is between $12 and $13. Above these levels, the stock has significant room to run higher. While the stock is not particularly inexpensive on a valuation basis, with a price-to-earnings ratio of 44 relative to the industry average of 13, the company operates at more than double the industry average operating margin. The company has an operating margin of 63.4% and the industry average operating margin 29.8%. Overall, the combined strength of the operating margin, the income element and the growth angle, make this an attractive addition to a growth focused financial portfolio.
Leucadia Corp. (LUK) – While not purely a financial company, LUK’s investments in a diversified range of businesses, each with favorable growth characteristics, make it a unique play as a financials investment. The company’s closest competitors are Apollo Investment Corp. (AINV) and The Blackstone Group (BX). Each focuses on making strategic investments targeted at maximizing return on capital. Each of these competitors has lost money in recent quarters, making LUK’s price-to-earnings ratio of 3.6 against an industry average of 12.7 even stronger. While AINV has an operating margin of 68.2%, higher than an operating margin of 56.9% for LUK and a negative operating margin for BX, given that AINV failed to turn a profit in the most recent quarter, the argument that either of the two is better run than LUK is somewhat futile. In terms of recent price action, the stock has demonstrated certain characteristics of a downtrend. Should the stock successfully break through the $24 price level, the upside of the stock is significant. Evaluating LUK as a financial, the company should be a great addition to an aggressive portfolio.
Morningstar, Inc. (MORN) – Despite a recent article panning this stock as an overvalued, no-growth dud, to the careful observer, this stock has untapped potential. The company provides a much needed service to investors, is superbly well run, and will be benefitted as investors continue to return to the market. While a short-sighted, and somewhat jaundiced, view suggests that the stock market has permanently fallen out of favor, the cyclical downturn is predictable. As the economy stabilizes and investors return to the stock market, quality ratings on mutual funds will be ever more valuable. When compared with competitor Thompson Reuters Corporation (TRI), the price-to-earnings ratio suggests that the company is expensive - MORN trades at a price-to-earnings ratio of 32.1 relative to 16.1 for TRI. When the growth element is added, the price-to-earnings over growth (PEG) ratio of MORN is 1.6 and it is 1.01 for TRI. The operating margin of MORN is 22.4% and the operating margin of TRI is 16.1%. These metrics make TRI look equally attractive, though less efficient, but it is the innocuous appearance of MORN that makes it appealing. It has traded between $54 and $62 over the past year. As such, the downside is limited, but if this range can be broken to the upside, the upside potential is significant. The return of investors to the market may serve as the needed catalyst, but in any event, the stock is solid.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.