When analysts rate a company's stock as a 'Strong Buy', it's a sign that there are a variety of things that the company is doing right. It also means there is confidence that the stock is going to increase in value. Today we focus on stocks sporting high analyst ratings, but that also look undervalued from a price-multiple perspective. We came up with a rather diverse list, but we think you'll find it interesting.
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 financial stocks. We then looked for businesses that are trading at a discount (P/E<10)(PEG < 1). Next, we then screened for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). We did not screen out any market caps.
Do you think these stocks deserve to trade higher? Use our screened list as a starting point for your own analysis.
1) KB Financial Group, Inc. (KB)
|Industry:||Foreign Regional Banks|
KB Financial Group, Inc. has a Price/Earnings Ratio of 6.53, a Price/Earnings to Growth Ratio of 0.54, and a Analysts' Rating of 1.00. The short interest was 0.09% as of 06/13/2012. KB Financial Group Inc., a financial holding company, provides various banking and related financial services to consumers and corporations primarily in Korea. It involves in a range of businesses, including commercial banking, asset management, life insurance, capital markets activities, and international banking. The company accepts demand deposits, time deposits, savings deposits, certificates of deposit, foreign currency deposits, and mutual installment deposits, as well as housing subscription time deposits and housing subscription installment savings deposits.
2) Enstar Group Limited (ESGR)
|Industry:||Property & Casualty Insurance|
Enstar Group Limited has a Price/Earnings Ratio of 8.95, a Price/Earnings to Growth Ratio of 0.90, and a Analysts' Rating of 1.00. The short interest was 2.30% as of 06/13/2012. Enstar Group Limited acquires and manages insurance and reinsurance companies in run-off and portfolios of insurance and reinsurance businesses in run-off. It also offers management and consultancy services, claims inspection services, and reinsurance collection services to its affiliates and third-party clients. The company serves multinational company clients in Bermuda, the United States, Europe, and Australia.
3) Preferred Bank (PFBC)
|Industry:||Regional - Pacific Banks|
Preferred Bank has a Price/Earnings Ratio of 4.73, a Price/Earnings to Growth Ratio of 0.47, and a Analysts' Rating of 1.50. The short interest was 0.12% as of 06/13/2012. Preferred Bank operates as a commercial bank in California. The company provides a range of deposit and loan products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. Its deposit products include checking, savings, negotiable order of withdrawal, and money market deposit accounts; fixed-rate and fixed maturity retail certificates of deposit; and individual retirement accounts and non-retail certificates of deposit.
4) Banco Santander, S.A. (STD)
|Industry:||Foreign Money Center Banks|
Banco Santander, S.A. has a Price/Earnings Ratio of 4.59, a Price/Earnings to Growth Ratio of 0.37, and a Analysts' Rating of 1.50. The short interest was 0.30% as of 06/13/2012. Banco Santander, S.A. provides a range of banking and financial products. It offers various deposit products, such as demand and time deposits, and savings and current accounts; repurchase agreements; mortgages and personal loans; consumer finance; and telephone banking services, and online and mobile telephone banking services. The company also engages in corporate banking, treasury, and investment banking activities; designs and manages mutual and pension funds, investment companies, and discretionary portfolios; manages real estate investment products; and offers trade finance and wholesale banking services.
5) Barclays PLC (BCS)
|Industry:||Foreign Money Center Banks|
Barclays PLC has a Price/Earnings Ratio of 7.83, a Price/Earnings to Growth Ratio of 0.36, and a Analysts' Rating of 1.30. The short interest was 0.24% as of 06/13/2012. Barclays PLC provides various financial products and services worldwide. It offers retail and commercial banking, credit cards, investment banking, wealth management, and investment management services. The company's personal banking products include bank accounts, a range of credit cards through Barclaycard, savings accounts, loans, insurance, online banking, and mortgages through Woolwich.
6) Triangle Capital Corporation (TCAP)
Triangle Capital Corporation has a Price/Earnings Ratio of 7.84, a Price/Earnings to Growth Ratio of 0.52, and a Analysts' Rating of 1.50. The short interest was 3.56% as of 06/13/2012. Triangle Capital Corporation is a business development company specializing in private equity and venture capital investments. It focuses on leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing, and recapitalizations in lower middle market companies. The firm prefers to make investments in many business sectors including manufacturing, distribution, transportation, energy, communications, health services, restaurants, media, and others.
7) Deutsche Bank AG (DB)
|Industry:||Foreign Regional Banks|
Deutsche Bank AG has a Price/Earnings Ratio of 7.82, a Price/Earnings to Growth Ratio of 0.78, and a Analysts' Rating of 1.50. The short interest was 1.06% as of 06/13/2012. Deutsche Bank Aktiengesellschaft provides investment, financial, and related products and services. The company's Corporate and Investment Bank division engages in the origination, sale, structuring, and trading of bonds, equities and equity-linked products, exchange-traded and over-the-counter derivatives, foreign exchange, money market instruments, securitized instruments, and commodities to sovereign countries and multinational organizations; and medium-sized companies and multinational corporations. It also offers mergers and acquisitions advisory, corporate finance, and transaction banking, as well as trade finance, and trust and securities services for financial institutions and other companies.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.