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 appear undervalued from a price-multiple standpoint. We came up with a rather diverse list of financial companies, but we think you'll find it interesting.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear.
Price/Sales Ratio = Current Stock Price/Revenue (sales) 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 financial stocks. From here, we then looked for companies that are trading at a discount (P/S<1)(P/E<10). We then 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 have strong fundamentals? Use this list as a starting-off point for your own analysis.
1) CNO Financial Group, Inc. (CNO)
|Industry:||Accident & Health Insurance|
CNO Financial Group, Inc. has a Price/Sales Ratio of 0.44, a Price/Earnings Ratio of 6.56, and a Analysts' Rating of 2.40. The short interest was 10.61% as of 07/09/2012. CNO Financial Group, Inc., through its subsidiaries, engages in the development, marketing, and administration of health insurance, annuity, individual life insurance, and other insurance products for senior and middle-income markets in the United States. The company's Bankers Life segment markets and distributes Medicare supplement insurance, interest-sensitive and traditional life insurance, fixed annuities, and long-term care insurance products; Medicare advantage plans through a distribution arrangement with Humana Inc.; and Medicare Part D prescription drug plans through a distribution and reinsurance arrangement with Coventry Health Care.
2) Apollo Global Management, LLC (APO)
Apollo Global Management, LLC has a Price/Sales Ratio of 0.59, a Price/Earnings Ratio of 7.18, and a Analysts' Rating of 2.10. The short interest was 6.40% as of 07/09/2012. Apollo Global Management, LLC is a publicly owned investment manager. The firm primarily provides its services to pension and endowment funds, institutional investors, individual investors, pooled investment vehicles, and corporations. It manages client focused portfolios, hedge funds, real estate funds, and private equity funds for its clients.
3) Grupo Financiero Galicia S.A. (GGAL)
|Industry:||Foreign Regional Banks|
Grupo Financiero Galicia S.A. has a Price/Sales Ratio of 0.40, a Price/Earnings Ratio of 2.09, and a Analysts' Rating of 2.50. The short interest was 9.66% as of 07/09/2012. Grupo Financiero Galicia S.A. operates as a financial services holding company in Argentina. It provides a range of financial services through a distribution platform among private-sector financial institutions in Argentina; life, retirement, and property and casualty insurance products, as well as insurance brokerage services; and deposit certificates and warrants. The company also offers loans to national and provincial governments, banks, and local financial institutions; and mortgage loans, pledge loans, credit card loans, personal loans, export prefinancing loans, and short-term placements, as well as advances and promissory notes.
4) Knight Capital Group, Inc. (KCG)
|Industry:||Investment Brokerage - Regional|
Knight Capital Group, Inc. has a Price/Sales Ratio of 0.82, a Price/Earnings Ratio of 9.48, and a Analysts' Rating of 2.20. The short interest was 8.21% as of 07/09/2012. Knight Capital Group, Inc., a financial services company, provides access to the capital markets across multiple asset classes to buy-and sell-side firms and corporations, as well as offers capital markets services to corporate issuers and private companies primarily in the United States. The company's Market Making segment engages in market making in global equities and listed domestic options. It primarily offers client and non-client electronic market making activities in equity securities quoted and traded on the exchanges, over-the-counter markets, and option markets.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.