3 Financial Stocks to Consider
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Financial stocks have been fantastic bets throughout the recovery, but some look to have more room to run than others.
The Financial SPDR ETF (NYSEMKT: XLF) is up 23% year-to-date. Over the course of the past year, it has outperformed the broader market by a whopping 16 percentage points. Even though the financials have been one of the hottest sectors of the first half of 2013, there is still value to be found. In the coming months, financial equities will continue their uptrend and if investors want to capitalize on this opportunity, they should consider some of the following stocks.
Thomas Lee, JPMorgan Chase's (NYSE: JPM) chief equity strategist, recently hiked his year-end target on the S&P to 1,775 from 1,715 and noted that technology, financials and health care will be the top sector drivers to boost the market. At their current levels, stocks are trading at barely 14 times their forward earnings when they should be closer to 16-17 times.
JPMorgan and the Federal Energy Regulatory Commission are nearing the completion of a $410 million agreement that would put to rest accusations that the bank manipulated energy markets in California and the Midwest. The same deal will see JPMorgan forgo $200 million in unpaid claims from electricity buyers in California, and will clear up many questions that investors have about the company.
JPMorgan also recently announced the possibility of pursuing strategic alternatives for its physical commodities business, including its remaining holdings of commodities assets and its physical trading operations. The decision was a result of intense political and regulatory pressure, but the company will remain fully committed to its traditional financial commodity business. The company's commodities business includes trading derivatives and its activities in precious metals. The trading in physical commodities generates less than 2% of JPMorgan's total revenue, however.
The company vowed to resolve multiple government investigations and correct problems that regulators have found, and investors should compliment these initiatives to clean up the mess that the company has made.
JPMorgan's stock is trading almost at 1 times its book value, making it a stock investors should certainly keep an eye on.
Aflac (NYSE: AFL) derives more than 75% of its total revenue from Japan, and volatility in the yen has contributed to some share-price underperformance this year. The supplemental insurance company's stock is lagging the S&P 500 by about 5 percentage points in 2013, but it’s set to accelerate in the second half.
Margins are expanding and cash-flow is accelerating. The company also recently announced a share-buy back of $600 million in stock this year and anywhere from $600 million to $900 million in 2014. Reduced investment risk, rising margins and cash flows, and share buybacks should get Aflac back to double-digit earnings-per-share growth, and boost the stock. Yes, it’s lagged in 2013, but over the past 52 weeks it’s still up more than 40%. Keep on eye out for this little duck.
Citigroup (NYSE: C) recently delivered a profit and beat Wall Street’s expectations, and beat revenue expectations as well. Equities research analysts at the company also boosted their price target on shares to $58.00 in a research note issued to investors. You can expect better performance from CitiGroup ahead. The company is an innovative firm with plenty of new products providing potential for incremental growth.
Despite uncertainty about the bank's expenses and non-recurring charges, Citigroup continues to achieve stability from retail consumer banking, lower credit costs across its diverse business lines, and steady revenue growth from Citi Private Banking. Financial investors should keep this stock on their watch list, as it has potential to grow in the second half of the year.
Sluggish economic growth and the Federal Reserve’s road map to winding down its bond-buying program around this time next year mean that the easy money for the financial sector may have already been made. The sector is outperforming the broader market by a wide margin so far in 2013, however, and has been absolutely clobbering it over the past 52 weeks. The aforementioned stocks showing promising signs of upward growth and are definitely stocks that investors need to keep an eye on in the second half of the year.
Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.
Chris Johnson has no position in any stocks mentioned. The Motley Fool recommends Aflac. The Motley Fool owns shares of Citigroup Inc and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!