In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the consensus, when the consensus opinion appears to be wrong. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains.
Eurozone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on holdings of Greek government bonds as part of a plan to lower Greece's debt burden and try to contain the two-year-old eurozone crisis. This bodes well for bank stocks going forward. We posit this is the turning point the banking sector has been looking for. The market is clearly at an inflection point. To open a position you must have courage in your convictions; just remember, fortune favors the bold. A market correction provides opportunity to buy great names at a discount price.
The banking stocks discussed in this article are mid cap or better stocks with PEG Ratios of one or less, above industry average returns on equity and above industry average profit margins over the trailing twelve months. Additionally, these stocks have great stories and positive catalysts for future growth. A company's earnings per share is conceivably the most important statistic to understand before investing in a stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information.
When a company is profitable, and has money to give back to shareholders in the form of earnings, the company has two basic options: First, it can distribute some of the earnings in the form of a stock dividend. Factor this in with the fact that historically, dividend-paying stocks have outperformed non-dividend-paying stocks, and you have a recipe for outstanding returns. After the precipitous drop in the Dow in 2008, the high-dividend-payers were the first to recover. Whatever is not paid out in the form of dividends is placed into the retained earnings, which then become a source of capital that can be used to help support the growth of a company.
The PEG ratio is a broadly used indicator of a stock's prospective worth. It is preferred by numerous analysts over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. Many financiers use 1 as the cut-off point for PEG ratios. A PEG of 1 or less is believed to be favorable. As Warren Buffett would say, "price is what you pay; value is what you get."
These are bullish indicators regarding a stock's possible future performance. Moreover, most of these stocks are trading well below consensus analysts’ estimates. Several have recent upgrades and positive analyst comments. There may be more volatility ahead of us, nevertheless, this may be a good point to start a quarter position in these amazing buying opportunities or at least put them on your watch list. The seven stocks are: Ameriprise Financial Inc. (NYSE:AMP), KeyCorp (NYSE:KEY), The Nasdaq OMX Group, Inc. (NASDAQ:NDAQ), Comerica Incorporated (NYSE:CMA), East West Bancorp, Inc. (NASDAQ:EWBC), Jefferies Group, Inc. (NYSE:JEF) and First Niagara Financial Group Inc. (NASDAQ:FNFG).
Below are two tables with detailed statistics regarding each company’s current summary information and fundamental information, followed by a brief review of each company, detailed current analysts' estimates and up / downgrade activity, followed by a chart of the company's key statistics. Nonetheless, this is only the first step in finding winners for your portfolio. Please use this as a starting point for your own due diligence.
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Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides financial planning, products, and services primarily in the United States. The company is trading below analyst estimates. Ameriprise has a median price target of $61 by 12 brokers and a high target of $76. The last up/downgrade activity was on Oct 14, 2011, when ISI Group initiated coverage on the company with a Buy rating.
KeyCorp (KEY) operates as a holding company for KeyBank National Association that provides various banking services in the United States. The company is trading slightly below analysts' estimates. KeyCorp has a median price target of $8 by 25 brokers and a high target of $10. The last up/downgrade activity was on Jul 20, 2011, when RBC Capital Markets upgraded the company from Sector Perform to Outperform.
The Nasdaq OMX Group, Inc. (NDAQ) provides trading, clearing, exchange technology, securities listing, and public company services worldwide. The company is trading below analysts' estimates. The Nasdaq has a median price target of $28 by 17 brokers and a high target of $34. The last up / downgrade activity was on June 9, when Stifel Nicolaus upgraded the company from Hold to Buy.
Comerica Incorporated (CMA), through its subsidiaries, provides various financial products and services in Texas, Arizona, California, Florida, and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. The company is trading below analysts' estimates. Comerica has a median price target of $32 by 31 brokers and a high target of $44. The last up/downgrade activity was on Aug 10, 2011, when Compass Point upgraded the company from Neutral to Buy.
East West Bancorp, Inc. (EWBC) operates as the holding company for East West Bank, which provides a range of personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals in California. The company is trading slightly below analysts' estimates. East West Bancorp has a median price target of $21 by 17 brokers and a high target of $26. The last up/downgrade activity was on Aug 1, 2011, when FBR Capital upgraded the company from Market Perform to Outperform.
Jefferies Group, Inc. (JEF), together with its subsidiaries, operates as a securities and investment banking company in the Americas, Europe, and Asia. It operates in two segments, Capital Markets and Asset Management. The company is trading slightly below analysts' estimates. Jefferies has a median price target of $16 by 8 brokers and a high target of $30. The last up/downgrade activity was on Mar 23, 2011, when Ticonderoga upgraded the company from Neutral to Buy.
First Niagara Financial Group, Inc. (FNFG) is a holding company for First Niagara Bank, N.A. that provides retail and commercial banking, and other financial services to individuals, families, and businesses. The company is trading below analysts' estimates. First Niagara has a median price target of $12 by 9 brokers and a high target of $17. The last up/downgrade activity was on Jul 22, 2011, when Boenning & Scattergood upgraded the company from Neutral to Outperform.