5 Financial Giants Still Trading Under Book Value
As 2016 comes to an end, it is important to first look back and consider what has taken place and then to look forward to what may come in 2017. The rally since the November 8 election has been unprecedented, and the Trump policies so far seem to be positive for financial stocks and for companies that are involved in infrastructure, natural resources, consumer spending and domestic production. It is the financial sector that has really gathered steam since the election. It turns out that lower regulation, more loaning, higher interest rates and perhaps even more trading allowances are all being viewed as pro-growth policies for the financial sector.
24/7 Wall St. regularly reviews value investing and value stock picks. For “value” to be found in financial stocks, one metric that is always insightful is a review of profitable companies that are trading at discounts to their stated book values.
It is important to understand that there is no free lunch when it comes to investing. It is also important to understand that not a single political effort has formally started taking shape as policy yet. There could be difficult voting approvals with all the infighting that may occur. Anyhow, just keep in mind that massive rallies do not always get followed by continued rallies. It is also important to consider that these stocks are up more than the broader market since the election, but that their shares actually may be down from the peaks seen in the first week or two of December.
Before jumping in blindly here just because of stated book values, it needs to be understood that stated book values are often far different from tangible book values. These stock prices are also very close to or slightly above what is listed as the consensus analyst target price from Thomson Reuters.
Additional data viewed has been valuation metrics on forward earnings, trading history and performance metrics since the dividend-adjusted closing prices on November 8. Some of these gains may seem massive, but they are far less than the six stocks featured with gains of 500% to 1,500% so far in 2016.
MetLife Inc. (NYSE: MET) leads the pack at a discount to book value with a price-to-book ratio of 0.77. The insurance giant last closed at $54.70, in a 52-week trading range of $35.00 to $58.09. This was a $47.88 stock on the day of the election, making for a 14% return since. That is up less than some of the bank stocks, perhaps as much of MetLife’s operations may still be dogged by some of the commitments made during recent years when rates were stubbornly low. MetLife’s consensus analyst price target is $59.08, and its dividend yield is 2.9%.
American International Group Inc. (NYSE: AIG) was last seen trading at $66.70 and is valued at 0.81 times book value with a value of 12 times expected earnings. AIG has been in a steady state of chopping down its non-core operations in recent years, and for the most part that transition and asset sale (or divesting) seems over. Still, AIG remains one of the poster children of the recession and financial jeopardy, and that explains why investors might not have wanted to pay a premium for the stock. AIG’s 52-week range is $48.41 to $66.92, and its consensus target price is $68.31. Its dividend yield is 1.9%. AIG shares were at $59.50 on election day, making for a gain of 12% since then.