If you are a bargain hunter, there are deals to be found in the financial sector at the mid cap level. Today we focused on companies possessing strong track records of profitability as well as appearing to be undervalued from a price-multiple standpoint. If these companies can maintain their profits, these prices won't remain low for long. Take a look to see if any of these mid cap stocks meet your criteria.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
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/Book Value Ratio is a great price-multiple valuation metric to find companies that could be potentially undervalued or overvalued. If a firm has a Price/Book Value Ratio of less than 1 it is stated to be trading below "break up" value. A lower P/BV Ratio can indicate a potentially mispriced company or indicate that something is fundamentally wrong with it.
We first looked for mid cap stocks. We next screened for businesses that have achieved strong bottom line profitability (Net Margin [TTM]>10%)(1-year fiscal EPS Growth Rate>10%). We then screened for businesses with a low price-multiple premium (forward P/E<10)(P/BV<1). We did not screen out any sectors.
Do you think these mid-cap stocks will go up in valuation? Use our screened list as a starting point for your own analysis.
1) KeyCorp (KEY)
|Industry:||Money Center Banks|
KeyCorp has a Net Margin of 21.67%, a Earnings Per Share Growth Rate of 94.72%, a Forward Price/Earnings Ratio of 9.57, and a Price/Book Value Ratio of 0.77. The short interest was 1.55% as of 08/06/2012. KeyCorp operates as a holding company for KeyBank National Association that provides various banking services in the United States. The company's Key Community Bank segment offers regional banking services, including deposit and investment products; personal finance services and loans comprising residential mortgages, home equity, and installment loans; deposits, investment and credit products, and business advisory services to small businesses; and financial, estate and retirement planning, and asset management services to high-net-worth clients. This segment also provides commercial banking products and services, such as commercial lending, cash management, equipment leasing, investment and employee benefit programs, succession planning, access to capital markets, and derivatives and foreign exchange to mid size businesses.
2) Nasdaq OMX Group Inc. (NDAQ)
Nasdaq OMX Group Inc. has a Net Margin of 10.71%, a Earnings Per Share Growth Rate of 12.69%, a Forward Price/Earnings Ratio of 8.01, and a Price/Book Value Ratio of 0.79. The short interest was 3.17% as of 08/06/2012. The NASDAQ OMX Group, Inc. delivers trading, clearing, exchange technology, regulatory, securities listing, and public company services worldwide. It offers trading across various asset classes, including cash equities, derivatives, debt, commodities, structured products, and exchange traded funds; market data products, financial indexes, capital formation solutions, financial services and market technology products and services, as well as clearing, settlement, and depository services. The company also provides trade reporting and trade comparison services, and risk management services; broker services comprising technology and customized securities administration solutions to financial participants.
3) Huntington Bancshares Incorporated (HBAN)
|Industry:||Regional - Midwest Banks|
Huntington Bancshares Incorporated has a Net Margin of 21.38%, a Earnings Per Share Growth Rate of 206.69%, a Forward Price/Earnings Ratio of 9.62, and a Price/Book Value Ratio of 0.97. The short interest was 2.44% as of 08/06/2012. Huntington Bancshares Incorporated operates as the holding company for The Huntington National Bank that provides commercial, small business, and consumer banking services. The company's Retail and Business Banking segment offers various financial products and services, including checking, savings, and money market accounts, certificates of deposit, consumer loans, and small business loans and leases; and investments, insurance, interest rate risk protection, foreign exchange hedging, and treasury management services to consumer and small business customers. Its Regional and Commercial Banking segment provides commercial lending; depository and liquidity management products; treasury management solutions; equipment and technology leasing; international services; and capital markets services, such as interest rate risk protection, foreign exchange hedging and sales, trading of securities, mezzanine investment capabilities, and employee benefit programs to government, not-for-profit, health-care, and publicly traded entities.
4) Woori Finance Holdings Co., Ltd. (WF)
|Industry:||Foreign Regional Banks|
Woori Finance Holdings Co., Ltd. has a Net Margin of 40.76%, a Earnings Per Share Growth Rate of 65.64%, a Forward Price/Earnings Ratio of 5.86, and a Price/Book Value Ratio of 0.49. The short interest was 0.16% as of 08/06/2012. Woori Finance Holdings Co., Ltd., through its subsidiaries, provides various banking, and financial products and services in Korea. The company offer various deposit products, such as demand, time, repurchase instruments, certificates of deposit, installment, and saving deposit. Its loan portfolio includes general purpose household, mortgage, home equity, automobiles, heavy machinery and medical equipment, working capital, facilities, and housing loans.
5) Regions Financial Corp. (RF)
|Industry:||Regional - Southeast Banks|
Regions Financial Corp. has a Net Margin of 12.00%, a Earnings Per Share Growth Rate of 96.48%, a Forward Price/Earnings Ratio of 8.75, and a Price/Book Value Ratio of 0.68. The short interest was 1.34% as of 08/06/2012. Regions Financial Corporation operates as the holding company for Regions Bank that provides a range of commercial, retail, and mortgage banking services in the United States. It offers various deposit products, including savings and transaction accounts; demand deposit accounts; money market accounts; and time deposits, such as certificate of deposits and individual retirement accounts. The company's loan portfolio comprises commercial loans, such as commercial and industrial, and owner occupied commercial real estate mortgage and construction loans; investor real estate loans, including commercial real estate mortgage and construction loans; and consumer loans, which consist of residential first mortgage, home equity, indirect, consumer credit card, and other consumer loans. Regions Financial Corporation, through other subsidiaries, also provides regional brokerage and investment banking products and services, such as securities brokerage, trust, asset management, financial planning, mutual funds, securities underwriting, sales and trading, and investment banking services for individual and institutional investors; and insurance brokerage services for various lines of personal and commercial insurance comprising property, casualty, life, health, and accident.
6) Assured Guaranty Ltd. (AGO)
|Industry:||Surety & Title Insurance|
Assured Guaranty Ltd. has a Net Margin of 12.85%, a Earnings Per Share Growth Rate of 60.17%, a Forward Price/Earnings Ratio of 4.28, and a Price/Book Value Ratio of 0.51. The short interest was 1.39% as of 08/06/2012. Assured Guaranty Ltd., through its subsidiaries, provides credit protection products to public finance, infrastructure, and structured finance markets primarily in the United States, Europe, and Australia. It offers insurance that protect holders of debt instruments and other monetary obligations from defaults in scheduled payments, including scheduled interest and principal payments. The company insures various securities, including tax-exempt and taxable obligations issued by the United States state or municipal governmental authorities, and utility districts or facilities; notes or bonds issued to finance international infrastructure projects; and asset-backed securities issued by special purpose entities.
*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.