When analysts rate a company's stock as a 'Buy' or 'Strong Buy', it shows that there are a number of things that the company is doing right. It also means there is high confidence that the stock is going to grow in value. Today we focus on financial stocks with mid to high analyst ratings, but that also look undervalued from a price-multiple standpoint. We came up with an interesting list; please tell us what you think in the comments section.
The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint.
Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share
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.
We first looked for large cap financial stocks. We then looked for companies that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We next screened for businesses that are trading at low price-multiple valuations (P/CFO<10)(P/E<10).
Do you think these large-cap stocks have strong fundamentals? Use this list as a starting-off point for your own analysis.
1) Citigroup, Inc. (C)
|Industry:||Money Center Banks|
Citigroup, Inc. has a Analysts' Rating of 2.40, a Price/Cash Flow Ratio of 3.00, and a Price/Earnings Ratio of 7.59. The short interest was 1.95% as of 06/28/2012. Citigroup Inc., a diversified financial services holding company, provides a range of financial products and services to consumers, corporations, governments, and institutions worldwide. The company operates through two segments, Citicorp and Citi Holdings. The Citicorp segment operates as a global bank for businesses and consumers with two primary businesses, Global Consumer Banking and Institutional Clients Group.
2) MetLife, Inc. (MET)
MetLife, Inc. has a Analysts' Rating of 1.90, a Price/Cash Flow Ratio of 1.69, and a Price/Earnings Ratio of 5.51. The short interest was 3.12% as of 06/28/2012. MetLife, Inc., through its subsidiaries, provides insurance, annuities, and employee benefit programs in the United States, Japan, Latin America, the Asia Pacific, Europe, and the Middle East. The company offers group life insurance products, including variable, universal, term, and whole life products, as well as employee paid supplemental life products; and individual life insurance products comprising variable, universal, term, and whole life products, as well as a range of mutual funds and other securities products. It also provides non-medical health products and services, which include dental insurance, group short- and long-term disability, individual disability income, long-term care, critical illness, and accidental death and dismemberment coverages, as well as employer-sponsored auto and homeowners insurance, and administrative services to employers; and retirement products consisting variable and fixed annuities that are primarily sold to individuals and employees of corporations and other institutions.
3) AFLAC Inc. (AFL)
|Industry:||Accident & Health Insurance|
AFLAC Inc. has a Analysts' Rating of 2.30, a Price/Cash Flow Ratio of 8.62, and a Price/Earnings Ratio of 8.10. The short interest was 1.70% as of 06/28/2012. Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. It also provides loss-of-income products, such as life and short-term disability plans; and products designed to protect individuals from depletion of assets, which comprise hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/critical care, and hospital intensive care plans in the United States. The company sells its products through sales associates and brokers, independent corporate agencies, individual agencies, and affiliated corporate agencies.
4) Fifth Third Bancorp (FITB)
|Industry:||Regional - Midwest Banks|
Fifth Third Bancorp has a Analysts' Rating of 2.20, a Price/Cash Flow Ratio of 5.34, and a Price/Earnings Ratio of 8.65. The short interest was 1.31% as of 06/28/2012. Fifth Third Bancorp operates as a diversified financial services holding company in the United States. The company's Commercial Banking segment offers credit intermediation, cash management, and financial services; lending and depository products; and foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing, and syndicated finance for business, government, and professional customers. Its Branch Banking segment provides deposit and loan, and lease products to individuals and small businesses.
5) Capital One Financial Corp. (COF)
Capital One Financial Corp. has a Analysts' Rating of 1.90, a Price/Cash Flow Ratio of 7.42, and a Price/Earnings Ratio of 6.92. The short interest was 1.57% as of 06/28/2012. 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. It 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. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.