7 Financial Stocks Trading At A Discount Despite Analyst Favor

by: ZetaKap

When analysts rate a company's stock as a '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 financial stocks sporting positive 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 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.

The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is, the more the firm is relying on debt to finance its assets.

We first looked for financial stocks. We then screened for businesses that are trading at a discount when considering the company growth rate (PEG Ratio < 1)(forward P/E<10). We next screened for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). We did not screen out any market caps.

Do you think these stocks will go up in price? Use this list as a starting-off point for your own analysis.

1) Itau Unibanco Holding S.A. (NYSE:ITUB)

Sector: Financial
Industry: Foreign Money Center Banks
Market Cap: $66.28B
Beta: 1.71

Itau Unibanco Holding S.A. has a Price/Earnings to Growth Ratio of 0.86, a Forward Price/Earnings Ratio of 7.11, and a Analysts' Rating of 2.50. The short interest was 0.87% as of 07/06/2012. Ita Unibanco Holding S.A. provides a range of credit and other financial services to individuals and companies in Brazil and internationally. Its products and services include personal loans, overdraft protection, payroll loans, vehicle loans, credit cards, mortgage and agricultural loans, working capital loans, and trade note discount and export; pension plans, mutual funds, time deposits, demand deposit accounts, savings accounts, and capitalization plans; and insurance products, including life, home, credit/cash cards, vehicles, and loan protection, as well as exchange and brokerage services. The company also provides financial products and services, such as investment options; private retirement plans; and investment capital loans, inventory financing, trade financing, foreign currency services, equipment leasing services, letters of credit, and guarantees, as well as collection services and electronic payment services.

2) AmTrust Financial Services, Inc. (NASDAQ:AFSI)

Sector: Financial
Industry: Property & Casualty Insurance
Market Cap: $1.80B
Beta: 0.83

AmTrust Financial Services, Inc. has a Price/Earnings to Growth Ratio of 0.96, a Forward Price/Earnings Ratio of 9.37, and a Analysts' Rating of 1.90. The short interest was 18.21% as of 07/06/2012. AmTrust Financial Services, Inc., through its subsidiaries, underwrites and provides property and casualty insurance in the United States and internationally. The company operates in four segments: Small Commercial Business, Specialty Risk and Extended Warranty, Specialty Program, and Personal Lines Reinsurance. The Small Commercial Business segment provides workers' compensation, commercial package, and other commercial insurance lines to small businesses through wholesale and retail agents, and brokers.

3) Triple-S Management Corporation (NYSE:GTS)

Sector: Financial
Industry: Accident & Health Insurance
Market Cap: $516.29M
Beta: 1.00

Triple-S Management Corporation has a Price/Earnings to Growth Ratio of 0.83, a Forward Price/Earnings Ratio of 8.65, and a Analysts' Rating of 2.40. The short interest was 4.13% as of 07/06/2012. Triple-S Management Corporation, through its subsidiaries, provides a portfolio of managed care and related products in the commercial and Medicare markets in Puerto Rico. It offers managed care products, including health maintenance organization plans; preferred provider organization plans, BlueCard program, Medicare Supplement products, and Medicare Advantage products, as well as Medicare Part D, a prescription drug plan; and administrative services. These products and services are designed to meet the needs and objectives of employers, professional and trade associations, individuals, and government entities.

4) Ameriprise Financial Inc. (NYSE:AMP)

Sector: Financial
Industry: Asset Management
Market Cap: $11.24B
Beta: 1.96

Ameriprise Financial Inc. has a Price/Earnings to Growth Ratio of 0.91, a Forward Price/Earnings Ratio of 7.65, and a Analysts' Rating of 2.10. The short interest was 1.08% as of 07/06/2012. Ameriprise Financial Inc., through its subsidiaries, provides a range of financial products and services in the United States and internationally. The company's Advice and Wealth Management segment offers financial planning and advice, as well as brokerage and banking services primarily to retail clients through its financial advisors. The Asset Management segment provides investment advice and investment products to retail and institutional clients.

5) Everest Re Group Ltd. (NYSE:RE)

Sector: Financial
Industry: Property & Casualty Insurance
Market Cap: $5.54B
Beta: 0.54

Everest Re Group Ltd. has a Price/Earnings to Growth Ratio of 0.90, a Forward Price/Earnings Ratio of 7.85, and a Analysts' Rating of 2.50. The short interest was 3.10% as of 07/06/2012. Everest Re Group, Ltd., together with its subsidiaries, underwrites reinsurance and insurance in the United States (U.S.), Bermuda, and international markets.

6) Encore Capital Group, Inc. (NASDAQ:ECPG)

Sector: Financial
Industry: Credit Services
Market Cap: $740.51M
Beta: 2.10

Encore Capital Group, Inc. has a Price/Earnings to Growth Ratio of 0.81, a Forward Price/Earnings Ratio of 8.52, and a Analysts' Rating of 1.80. The short interest was 2.30% as of 07/06/2012. Encore Capital Group, Inc., through its subsidiaries, engages in consumer debt buying and recovery business primarily in the United States. The company purchases and manages portfolios of defaulted consumer receivables, such as consumers' unpaid financial commitments to credit originators, including banks, credit unions, consumer finance companies, commercial retailers, auto finance companies, and telecommunication companies; and receivables subject to bankruptcy proceedings or consumer bankruptcy receivables. The company was founded in 1998 and is headquartered in San Diego, California.

7) Axis Capital Holdings Limited (NYSE:AXS)

Sector: Financial
Industry: Property & Casualty Insurance
Market Cap: $4.30B
Beta: 0.81

Axis Capital Holdings Limited has a Price/Earnings to Growth Ratio of 0.79, a Forward Price/Earnings Ratio of 8.80, and a Analysts' Rating of 2.20. The short interest was 0.70% as of 07/06/2012. AXIS Capital Holdings Limited, through its subsidiaries, provides various insurance and reinsurance products to insureds and reinsureds worldwide. The company operates in two segments, Insurance and Reinsurance. The Insurance segment offers specialty insurance products, including property that covers commercial buildings, residential premises, construction projects, and onshore energy installations; marine covering offshore energy, cargo, liability, recreational marine, fine art, specie, hull, and war; aviation; terrorism; credit and political risk; and liability.

*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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