It is understandable that many people have lost trust in the financial sector and view this category as sub-optimal in terms of potential investments. But if we focus on the basic tenets of profitability and a sound infrastructure, there are still financial stocks that are worthy of further inquiry. Today we ran a scan to find financial stocks that have been steadily increasing their bottom line profitability. In addition, they have not relied on debt to fund growth. This combination of minimal debt and strong profits speaks to a company that been guided by tight fiscal controls. We think you will find the financial stocks listed below rather interesting.
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 Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
We first looked for financial stocks. Next, we then screened for businesses that have achieved strong bottom line profitability (Net Margin [TTM]>10%)(1-year fiscal EPS Growth Rate>10%). We next screened for businesses that have maintained a sound long term capital structure (Long Term D/E Ratio<.1). We then looked for companies that have maintained a sound capital structure (D/E Ratio<.1). We did not screen out any market caps.
Do you think these stocks are undervalued and have room to trade higher? Use our list along with your own analysis.
1) Capital Bank Corporation (CBKN)
|Industry||Regional - Mid-Atlantic Banks|
|Earnings Per Share Growth Rate||101.17%|
|Long Term Debt/Equity Ratio||0.08|
Capital Bank Corporation operates as the holding company for Capital Bank that provides general commercial banking products and services in North Carolina. Its deposit products include checking, savings, negotiable order of withdrawal, money market, and individual retirement accounts, as well as certificates of deposit. The company's loan products portfolio comprises loans for real estate, construction, businesses, agriculture, personal use, home improvement, and automobiles, as well as equity lines of credit, mortgage loans, credit loans, consumer loans, and credit cards. It also offers safe deposit boxes, bank money orders, Internet banking services, traveler's checks, and notary services, as well as electronic funds transfer services, including wire transfers and remote deposit capture.
In addition, the company provides automated teller machine access to its customers; and a line of uninsured investment products and services. It operates 32 branch offices in North Carolina, including 5 in Raleigh, 4 in Asheville, 4 in Fayetteville, 3 in Burlington, 3 in Sanford, 2 in Cary, and 1 each in Clayton, Graham, Hickory, Holly Springs, Mebane, Morrisville, Oxford, Pittsboro, Siler City, Wake Forest, and Zebulon. The company was founded in 1997 and is headquartered in Raleigh, North Carolina. Capital Bank Corporation is a subsidiary of North American Financial Holdings, Inc.
2) Solar Senior Capital Ltd (SUNS)
|Earnings Per Share Growth Rate||121.00%|
|Long Term Debt/Equity Ratio||0.00|
Solar Senior Capital Ltd., a business development company, provides investment management services in the United States. The company primarily invests in senior secured loans, including first lien, unitranche, and second lien debt instruments. It serves middle-market companies. The company was founded in 2010 and is headquartered in New York, New York.
3) Preferred Bank (PFBC)
|Industry||Regional - Pacific Banks|
|Earnings Per Share Growth Rate||115.16%|
|Long Term Debt/Equity Ratio||0.00|
Preferred Bank operates as a commercial bank in California. The company provides a range of deposit and loan products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. Its deposit products include checking, savings, negotiable order of withdrawal, and money market deposit accounts; fixed-rate and fixed maturity retail certificates of deposit; and individual retirement accounts and non-retail certificates of deposit.
The company also provides construction loans and mini-permanent loans for residential, commercial, industrial, and other income producing properties; working capital loans, equipment financing, and commercial real estate loans; and international trade finance, including commercial and standby letters of credit, acceptance financing, documentary collections, foreign draft collections, international wires, and foreign exchange to international trade finance customers. In addition, it offers various private banking services to wealthy individuals residing in the Pacific Rim area with residences, real estate investments, or businesses in Southern California.
Further, it provides various personal banking services to physicians, accountants, attorneys, business managers, and other professionals; and a range of deposit products and related services, such as safe deposit boxes, account reconciliation, courier service, and cash management services to the manufacturing, service, and distribution companies. The company operates 10 branches in Los Angeles, Orange, Ventura, Riverside, and San Bernardino counties. Preferred Bank was founded in 1991 and is headquartered in Los Angeles, California.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/04/2012.
Business Relationship Disclaimer: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.