Financial institutions certainly are suspect these days, and most people are not eager to make investments in this category. We understand this concern, but also thought about the cliche - don't throw the baby out with the bath water. We searched among financial stocks to find those offering high yields. From there, we narrowed our search to those with a recent rating of 'Buy' from industry analysts. The list was further reduced to those who appear to be trading below market value. Take a look for yourself to see if any of these financial companies both surprise and inspire you to do more research.
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.
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 that have a high dividend yield (Div. Yield > 5%). We then screened for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). We then looked for companies with a low price-multiple premium (forward P/E<10)(P/E<10). We did not screen out any market caps.
Do you think these stocks deserve to trade higher? Use this list as a starting-off point for your own analysis.
1) PennyMac Mortgage Investment Trust (PMT)
|Industry:||REIT - Residential|
PennyMac Mortgage Investment Trust has a Dividend Yield of 9.96%, a Payout Ratio of 73.68%, an Analysts' Rating of 1.70, a Forward Price/Earnings Ratio of 7.64, and a Price/Earnings Ratio of 8.12. The short interest was 3.69% as of 08/04/2012. PennyMac Mortgage Investment Trust is based in the United States.
2) IRSA Investments and Representations Inc. (IRS)
|Industry:||Real Estate Development|
IRSA Investments and Representations Inc. has a Dividend Yield of 11.98%, an Analysts' Rating of 2.30, a Forward Price/Earnings Ratio of 5.52, and a Price/Earnings Ratio of 6.89. The short interest was 1.21% as of 08/04/2012. IRSA Investments and Representations, Inc., through its subsidiaries and joint ventures, engages in a range of diversified real estate related activities in Argentina. It involves in the acquisition, development, and operation of shopping centers, as well as office and other non-shopping center properties primarily for rental purposes; the development and sale of residential apartment complexes and other residential communities; the acquisition and operation of luxury hotels; and the acquisition of undeveloped land reserves for future development and sale.
3) Newcastle Investment Corp. (NCT)
|Industry:||REIT - Diversified|
Newcastle Investment Corp. has a Dividend Yield of 10.64%, a Payout Ratio of 32.29%, an Analysts' Rating of 1.70, a Forward Price/Earnings Ratio of 5.15, and a Price/Earnings Ratio of 3.07. The short interest was 0.77% as of 08/04/2012. Newcastle Investment Corp. operates as a real estate investment and finance company that invests in and manages a portfolio consisting primarily of real estate securities. The company's portfolio of real estate securities includes commercial mortgage backed securities, senior unsecured debt issued by property REITs, real estate related asset backed securities, and agency residential mortgage backed securities. Newcastle also owns interest in loans and pools of loans, including real estate related loans, commercial mortgage loans, residential mortgage loans, and manufactured housing loans.
4) Banco Macro S.A. (BMA)
|Industry:||Foreign Regional Banks|
Banco Macro S.A. has a Dividend Yield of 17.58%, a Analysts' Rating of 2.20, a Forward Price/Earnings Ratio of 2.38, and a Price/Earnings Ratio of 2.58. The short interest was 1.71% as of 08/04/2012. Banco Macro S.A. provides banking products and services to individuals, entrepreneurs, companies, and corporate customers in Argentina. It offers various retail products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, car loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automated teller machines (ATMs), and money transfer services. The company also provides personal loans, document discounts, mortgages, overdrafts, pledged loans, and credit card loans to retail customers.
5) KKR Financial Holdings LLC (KFN)
KKR Financial Holdings LLC has a Dividend Yield of 7.81%, a Payout Ratio of 44.61%, an Analysts' Rating of 1.80, a Forward Price/Earnings Ratio of 4.98, and a Price/Earnings Ratio of 5.36. The short interest was 3.58% as of 08/04/2012. KKR Financial Holdings LLC, together with its subsidiaries, operates as a specialty finance company with expertise in a range of asset classes. It primarily invests in financial assets, such as below investment grade corporate debt comprising senior secured and unsecured loans, mezzanine loans, high yield bonds, and distressed and stressed debt securities; marketable equity securities; and private equity. The company also invests in other asset classes, such as natural resources and real estate.
6) American Capital Agency Corp. (AGNC)
|Industry:||REIT - Residential|
American Capital Agency Corp. has a Dividend Yield of 14.36%, a Payout Ratio of 81.17%, a Analysts' Rating of 2.10, a Forward Price/Earnings Ratio of 6.87, and a Price/Earnings Ratio of 5.44. The short interest was 3.63% as of 08/04/2012. American Capital Agency Corp. operates as a real estate investment trust (REIT). It invests in residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by government-sponsored entities or by the United States government agency. The company funds its investments primarily through short-term borrowings structured as repurchase agreements.
*Company profiles were sourced from Google Finance and Yahoo Finance. 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.