With the stock market having hit all-time highs almost monthly in 2017, and with this bull market eight-and-a-half years old, investors are routinely hearing that the stock market is expensive. The problem in calling the whole market expensive is that this a market full of many stocks and full of multiple sectors from which investors can pick and choose. It turns out that some parts of the market actually still look cheap in August of 2017.
Value investors often look for companies trading below their book value, and one sector that has continued to offer stock prices under their book value is the financial sector. This includes money center banks, regional banks and insurance companies.
Investors need to consider one issue about “value” when it comes to value investing. This is where beauty is solely in the eye of the beholder, and if a stock is considered “cheap” it is often cheap for a reason.
Companies tied to business development or that were foreign based with American depositary shares were excluded from this review to avoid unknown and perhaps circumstantial issues. The minimum size of the financial institutions screened were listed as having market capitalizations north of $2 billion, they had to trade over 100,000 shares per day for liquidity purposes, and they had to be paying a dividend to show that they had that minimum financial health metric. Each group also had to be profitable.
Please note that some of these stocks are only under book value to an August sell-off or due to other selling pressure in prior months. Some are also fighting over the systemically important financial institution (SIFI) status, which also means “too big to fail.” Again, “cheap” stocks often look cheap for a reason.
The book value screens came from Finviz.com and from second-quarter earnings press releases. We have included trading data, corporate data, consensus analyst price targets and future valuations from Thomson Reuters, dividend yields and market caps. Please note that some dividend yields are the “current yields” rather than dividends that have been approved by the Federal Reserve but that have yet to be paid to shareholders. After all, anything can change until it formally takes place!
Here are 12 mid-cap and large-cap financial sector stocks trading under the current stated book value as of August 2017.
Ally Financial Inc. (NYSE: ALLY) is valued at 0.75 times its stated book value. The company announced recently that the Federal Reserve has released its Ally Bank from the capital, liquidity and business plan commitments that had been made in connection with its application for membership in the Federal Reserve System. This includes the commitment to maintain a Tier 1 leverage ratio of at least 15%. The company further noted that Ally Bank may now manage its capital and liquidity subject to applicable regulatory requirements and is expected to distribute a dividend of approximately $2.9 billion to Ally Financial during the third quarter of 2017.
Ally Financial recently traded at $22.06 and has a 52-week trading range of $16.68 to $23.62. Its consensus analyst target price is $25.91, and its market cap is $9.9 billion.
American International Group, Inc. (NYSE: AIG) is valued at 0.77 times book value, and unlike some of the other financial players it has been in state of flux and reorganization since the Great Recession. Its core business focuses on insurance products for commercial, institutional and individual customers, and the AIG name is widely recognized around the world. Its dividend yield is over 2%.
AIG was last seen at $61.22 and has a 52-week range of $57.35 to $67.47. Its consensus target price is $70.00, and its market cap is $55.3 billion.
Capital One Financial Corp. (NYSE: COF) is valued at 0.80 times book value, and the credit card issuer has had a hard time with some of its internal metrics, along with other companies seeing some soft internals on credit card payment metrics. That has depressed Capital One’s market valuations, and its dividend yield is close to 2%. All risks aside, this is still considered to be a well-managed credit card issuer, and while it has raised rewards, the bank holding company hasn’t gone as “rewards crazy” as other credit card issuers.
Capital One traded at $81.44, in a 52-week range of $68.27 to $96.92. Its consensus target price is $95.57, and its market cap is $39.4 billion.