When industry analysts rate a company's stock as a 'Buy' or as a 'Strong Buy', it shows that there are a list of things that the company is doing right. It also means there is reasonable confidence that the stock will increase in value. Today we focus on large cap financial stocks with mid to high analyst ratings, but whose price-multiples suggest that they're still undervalued and trading at a discount. We came up with a short but intriguing list.
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 Price/Sales ratio is a price-multiple valuation metric used to help identify if a company is cheap by its 12-month trailing sales numbers. In the most basic terms, it lets an investor know how much the investment community is willing to pay for every dollars worth of sales.
A company 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 company's sales. On the other hand, a company 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
We first looked for large cap financial stocks. Next, we then screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). Next, we screened for businesses that are trading at a discount when considering the company growth rate (PEG Ratio < 1)(P/S<1).
Do you think these large-cap stocks are at too low of valuations, given their fundamentals? Use our list to help with your own analysis.
1) Deutsche Bank AG (NYSE:DB)
|Industry:||Foreign Regional Banks|
Deutsche Bank AG has an Analysts' Rating of 1.50, a Price/Earnings to Growth Ratio of 0.72, and a Price/Sales Ratio of 0.70. The short interest was 0.83% as of July 18, 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.
2) ING Groep N.V. (NYSE:ING)
ING Groep NV has an Analysts' Rating of 1.50, a Price/Earnings to Growth Ratio of 0.79, and a Price/Sales Ratio of 0.39. The short interest was 0.21% as of July 18, 2012. ING Groep N.V. operates as a financial services company that provides banking, investments, life insurance, and retirement services worldwide.
3) Barclays PLC (NYSE:BCS)
|Industry:||Foreign Money Center Banks|
Barclays PLC has an Analysts' Rating of 1.30, a Price/Earnings to Growth Ratio of 0.23, and a Price/Sales Ratio of 0.97. The short interest was 0.29% as of July 18, 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.
*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.