5 Great Value Picks In The Financial Sector

With the U.S. gross domestic product increasing at a 1.5% annual rate in the third quarter compared with 3.9% in the previous quarter, the cutback in production to avoid an inventory glut has also cut short the hopes of a rate hike in December this year.

While the Fed hinted at a December rate increase and rendered the growth in economy as "moderate," a strengthening dollar, deep spending cuts by energy firms, lower business spending as well as declines in manufacturing, wholesale and retail inventories indicate something else.

However, there is still some optimism left due to the slowdown in imports and a relatively healthy labor market along with the strong consumer spending data, which rose at a 3.2% annual pace in the third quarter. Also, consumer spending is expected to remain strong in the fourth quarter, reflecting strong underlying momentum of the economy. These fuel the chances of a rate hike in the final Fed meeting this year.

Though domestic demand remains healthy, global weakness and moderate growth pace of the U.S. economy makes the rate hike debatable. While things become clearer, adopting the old school way of investing in low P/E stocks can prove to be a good bargain for investors instead of waiting for the next Fed move.

A thorough analysis of the company’s growth potential to determine if the particular company has a bright future, along with a low P/E, will assure more returns.

Why the Finance Sector?

As of Oct 28, 2015, we have third-quarter results from 54 of the sector’s 85 members in the S&P 500 index that account for 63.5% of the sector’s total market cap in the index. Total earnings for these 54 Finance sector companies are up 7.1% from the same period last year on 1.6% lower revenues, with 55.6% beating EPS estimates and only 44.4% beating revenue estimates. (Read: Taking Stock of the Q3 Earnings Season)

Though the sector reflected top-line weakness, it fared better than sectors like basic materials, consumer staples, industrial products, energy and utilities. The finance sector has displayed improvement on the back of fewer litigation charges, effective cost-control measures and modest progress in core business lines despite a very unsupportive interest rate backdrop, thus making it a perfect sector for investment.

5 Undervalued Finance Stocks to Bet on

With the help of Zacks Stock Screener, we have shortlisted 5 stocks in the finance sector that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy), trade at a Price/Earnings (F1) ratio of less than 15, carry Value Style Score of ‘A’ and have projected EPS growth rate (F1/F0) of 10% or higher.

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