Are you looking for large-cap companies that still have room to grow? Interested in gaining exposure to financial companies? Do you prefer companies with strong profits? Looking for undervalued stocks? Keeping this idea in mind, we ran a screen you might be interested in.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
We first looked for large cap financial stocks. From here, we then looked for companies with strong profit margins (1-year operating margin>15%)(Net Margin [TTM] >10%). We then looked for companies that appear undervalued from a price-multiple perspective (P/E<10)(PEG Ratio < 1).
Do you think these large-cap stocks will outperform? Use this list as a starting-off point for your own analysis.
1) The Bank of New York Mellon Corporation (BK)
| Sector: | Financial |
| Industry: | Asset Management |
| Market Cap: | $24.32B |
| Beta: | 0.89 |
The Bank of New York Mellon Corporation has a Operating Profit Margin of 24.12% and Net Margin of 17.18% and Price/Earnings Ratio of 10.00 and Price/Earnings to Growth Ratio of 0.81. The short interest was 1.39% as of 05/22/2012. The Bank of New York Mellon Corporation, a financial services company, provides various products and services worldwide.
The Bank of New York Mellon Corporation offers a range of equity, fixed income, cash, and alternative/overlay products, as well as distributes investment management products. It also provides investment management, wealth and estate planning, and private banking solutions to high-net-worth individuals and families, charitable gift programs, endowments and foundations, and related entities, as well as offers mutual funds, separate accounts, and annuities.
2) Discover Financial Services (DFS)
| Sector: | Financial |
| Industry: | Credit Services |
| Market Cap: | $17.15B |
| Beta: | 1.47 |
Discover Financial Services has a Operating Profit Margin of 53.03% and Net Margin of 33.35% and Price/Earnings Ratio of 7.37 and Price/Earnings to Growth Ratio of 0.78. The short interest was 0.81% as of 05/22/2012. Discover Financial Services, a bank holding company, offers direct banking and payment services in the United States. It operates in two segments, Direct Banking and Payment Services. The Direct Banking segment offers Discover card-branded credit cards to individuals and small businesses that are accepted on the Discover Network.
3) Capital One Financial Corp. (COF)
| Sector: | Financial |
| Industry: | Credit Services |
| Market Cap: | $22.98B |
| Beta: | 1.75 |
Capital One Financial Corp. has a Operating Profit Margin of 29.53% and Net Margin of 21.75% and Price/Earnings Ratio of 6.55 and Price/Earnings to Growth Ratio of 0.71. The short interest was 1.33% as of 05/22/2012. Capital One Financial Corporation operates as the bank holding company for the Capital One Bank (USA), National Association (COBNA), and Capital One, National Association (CONA), which provide various financial products and services in the United States, the United Kingdom, and Canada.
Capital One Financial Corp. offers consumer and small business credit card lending, national closed end installment lending, and the international credit card lending services. The company also provides various non-interest bearing and interest-bearing deposits, including demand deposits, money market deposits, negotiable order of withdrawal accounts, savings accounts, certificates of deposit, and other consumer time deposits. Its loan portfolio comprises credit card loans; consumer loans, such as auto, home, and retail banking loans; and commercial loans, including commercial and multifamily real estate, middle market, specialty lending, and small-ticket commercial real estate loans.
*Company profiles were sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
