Which financial stocks look undervalued right now?
These stocks have been beat up. Where should people be looking for value right now?
Best Answer
508 points
John answered 11 months ago …
Financials Financials!
First, the financial sector as a whole is undervalued. The S&P 500 is trading at an average P/E of 21.19. The Financial Industry is trading at 14.42 while the sector average is at 15.18. Financial stocks are trading on the average 5 times lower earnings then the rest of the S&P 500.
Be that as it may I still would not buy Citi-group here.
For some undervalued yet attractive financial stocks I like:
JP Morgan Chase (JPM) P/E of 9.90
Bank of America (BAC) P/E 10.46
Wachovia Corp. (WB) 12.24
Wells Fargo (WFC) P/E 9.64
I still would wait a week or two and see a slight rise in the sector. There will be a long road to recovery and many opportunities. Don't try and predict the bottom just wait for momentum to enter the sector and then begin to plot your trades. Like Ethan said dont catch the falling knife.
Answers
1786 points
ChaosNantuko answered 11 months ago …
The Bank of America's (BAC) earnings haven't been heavily affected by subprime issues. In fact, they had enough capital to buy out CFC recently. This was clearly a calculated risk. Considering they are buying a company with known problems, as its price continues to fall, they must have put a lot of thought into it, and analyzed its prospects very carefully.
While the majority of the sector was having significant problems, this company managed to avoid most of those problems, and then buy another major player. I think a year from now, it will have better earnings then it did before this crisis, because it was able to essentially buy market share at heavily discounted prices, similar to how people look for undervalued stocks during times of crisis. At the end of the crisis, the companies fair P/E should be at least 10. It was approximately 11 before this all started. Assuming it makes 10% more next year then it did last year, (due to expansion via the buyout), and assuming a P/E of 11, that puts its value next year at 50.6. However, i believe when people see the earnings increasing, they'll decide it warrants a higher P/E ratio then 11. i think somewhere in the 12-14 range is where the P/E will be. That would give it a price target of 60 to 70.
From a technical standpoint, the stock is a mess. Wait for it to break 40.50 before entering.
2703 points
MNSL answered 11 months ago …
Still credit bubble is there. Now there are banking problems in other countries as well due to this sub prime bubble. Still there are some uncertainties. You can’t expect good profit margin and growth at least for next 03 years. Still there is a time to bottom out. Compare with home builders shares financial stocks have more promising future. Further some financial companies will have advantage over others once other competitors become bankrupt or lose their market share. If I am going to invest in USA I will particularly will like Citi Bank and Bank of America. We must not forget some of these banks have assets and investment to appreciate in the future. When you see low P/E level it is wise to pick these shares. In New Zealand still there are some listed small financial companies doing very well in spite of credit bubble. Still they are making good earnings and they have a strong balance sheet.
Read more from MNSL flag as abuse great answer
3127 points
EthanR answered 11 months ago …
Had I been asked this question last week, I would have agreed with Chaos Nantuko that BAC is the best large bank stock to buy right now. However, I believe that the BAC purchase of Countrywide is going to hurt their performance over the next 6-12 months. After all, CFC may be a long term viable investment, but they are a short term disaster.
So instead, I am looking at Wachovia Bank (WB) and Wells Fargo (WFC), both of which have outperformed BAC in recent weeks, as the better financial stocks to buy right now. Of the two, I think I might slightly prefer WB. Some fundamentals:
WB: PE 12 , Price/sales 2.05, Price/book 1.36, return on equity 13.2%, div yield 7.2%
WFC: PE 14, Price/sales 2.53, Price/book 2.51, return on equity 19.7%, div. yield 4.5%
If you buy WB at current level of 36.51, put a stop in below 34. If you buy WFC at current level of 28.20, put a stop in below 26.
Both stocks are still well below long term moving averages, but technical indicators such as MACD, RSI, and Stochastics have all recently turned up from oversold levels.
Again, to reduce risk, one could simply buy Financial ETF's, such as IYF or XLF. The dividend yield of IYF is currently about 3.5%. Beta is 1.08. XLF dividend is 3.8%, and the beta is 1.15% Good luck!
Good luck!
1130 points
sundarkambam answered 11 months ago …
Link : http://seekingalpha.com/article/59851-my-2008-investment-prognosis
Contrary to perception, the US financial services sector will in fact MODERATELY OUTPERFORM the market in 2008. Most of the negative news has already been factored in, and any positive news would create significant upsides. Stocks to watch for significant gains:
Citigroup (C) (far more resilient due to global presence. Sub-prime write-down impact has been over-played by the market. Expect Vikram Pandit to take some drastic steps to address operational efficiency issues),
E*Trade (ETFC) (Inherent strength of the original business model will help hold customers. It's fire-sale of high-risk assets to Citadel will cushion earnings impact for the next 2-3 quarters and help ride over the current crisis). However, in this sector, you need to have a 6-12 month time horizon for Q1 investments!
671 points
rvilmur answered 11 months ago …
I think that NCT Newcastle Investment Corporation has been pounded much more than necessary because it has little sub-prime exposure. It is now just below 10 and pays $2.88 in dividends. Its spread advantage in lending to mostly commercial borrowers is growing as short term rates are dropping much faster than long term borrowing rates. So, I think that this is both an income stock and a capital gains opportunity.
Richard Vilmur
