Stay with Financials: Many Still Below ’07 Highs and a “Value” Play

Reading a good blog this Monday night, it was somewhat surprising to read that this blog author was worried about the flattening yield curve and was avoiding the Financial sector. His reasons were solid, but I think that easier regulation will overcome the yield’s curve effect.

Financial’s have – for the most part under-performed this year – after the monster ramp following the 2016 Presidential election.

Here is quick rundown of some YTD returns of some major Financial stocks this year:

  • SPY: +15.5%
  • XLF+12.65%
  • JPM: +15.11% – JPM took out its 2007 peak print in 2013
  • BAC: +20% – 2007 high was near $55 per share
  • BRKB: +14.7% – Berkshire also took out its 2007 high in 2013.
  • SCHW: +11.67% – Schwab’s peak was in 1999, 2000 between $45 – $51.
  • GS: -1% – Goldmans 2007 high was $250, a level it hit in early ’17. It is the last bull market’s business model.
  • MS: +14% – 2007 peak was near $70 per share. Morgan has moved to asset gathering and de-emphasized the trading and banking business.
  • CME: +24% – CME’s peak in ’07 was $142 per share. The stock is right there – the bitcoin futures and option contracts might give the stock the push needed. The variable dividend will be declared in Dec, ’17.
  • ICE: 19.8% – took out its 2007 peak in 2013 – 2014.

Financials are a broad swath of the SP 500, roughly 15% of the market cap, and the sector consists of big and small banks, insurance companies, broker-dealers, asset gatherers, and the exchanges.

An article is being prepared for Seeking Alpha on the exchange sector, which may be under-followed and not well understood by retail investors.

FC – Financials

The above spreadsheet is a new, ongoing project that was started this weekend that looks at longer-term EPS and revenue growth rates of each sector. Readers should look at the “revenue growth” column – note how the longer-term trends were just 3% until the last 4 quarters.

Although some stocks would no doubt fall in the “growth” style box, there are enough reasonably-valued Financials to lead me to believe as ‘large-cap growth” fades or transitions, FInancial’s could see funds flow, looking for lower P.E, good ROE (return on equity) Financial’s that have underperformed.

Financial’s have been under-performing for a while as a sector. The sector saw a huge boost after the Presidential election last year, but as regulation is relaxed and banks can return more capital the sector should attract more shareholders.

Schwab has been a disappointment – again. Very frustrating, but it has a growth valuation.

(These sector spreadsheets will improve over time. This is the first pass, putting them out to readers, and they will evolve over time.)

Thanks for reading.

 

Leave a Reply

You must be logged in to post a comment.