As other sectors of the market struggle, there are a lot of financial stocks to buy now. Here are three that stand out.
If all the predictions are correct, first-quarter earnings for the companies in the S&P 500 Index look exciting. Research firm FactSet is forecasting earnings growth of 21.8% for the sector. If that turns out to be correct, it will be the best yearly growth rate since the third quarter of 2018, when that number hit 26.1%. And it is considerably higher than the 15.7% growth rate predicted at the end of last year.
The S&P 500 is divided into 11 sectors. Because of rising oil prices, energy stocks have seen the biggest price increases (up 33.4%) since December 31. And since the beginning of Q1, it has also reported the largest decrease in its expected earnings decline of all sectors, dropping to -21.8% from -61.2%.
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Number two in earnings growth is the Financials sector, which was hit hard during the pandemic. The sector’s earnings growth forecast has risen from 49.7% to 67.1%. As well, financial stocks have climbed an average of 11.8% since the end of 2020. As you can see in the following chart, investors are coming back to Financials.
With that in mind, I wanted to share three financial stocks to buy, all of which we recommended in my latest issue of Wall Street’s Best Digest. They each look attractive, both fundamentally and technically.
3 Financial Stocks to Buy Now
Financial Stock to Buy: Chubb Limited (CB)
“Chubb Limited is a global provider of insurance products covering property and casualty, accident and health, reinsurance, and life insurance. Chubb operates in 54 countries and is the world’s largest publicly traded property and casualty insurer.
“Consensus estimates call for the company to earn about $6.91 per share this year, and to go to about $11.44 per share next year. Chubb has paid dividends to investors since 1984, and has increased its payments for 28 consecutive years. During the past 10 years, it has increased its dividends at an annualized average rate of 11.15%, and its quarterly payment is $0.78.
“Its current price to forward earnings ratio (P/E Forward—a measure of valuation based on projected earnings) is 13.6. Its price to book ratio (P/Book) of 1.2 is 58.9% below the U.S. Market Index. Its price to sales ratio (P/Sales) of 2.0 is 19% below the market, and its price to cash flow (P/Cash Flow) of 8.1 is 49.9% below the index. Technically (from the chart’s perspective) CB also looks attractive, trading 23.3% below its all-time high), while it is forming a long double-bottom base pattern, between 168 and 87 approximately, in which 87 is acting as a strong technical support level.”
Financial Stock to Buy: Jefferies Financial Group (JEF)
Jefferies Financial Group Inc. (JEF) was picked by Gavin Graham, who writes for Gordon Pape’s Internet Wealth Builder. Here’s why Gavin likes Jefferies:
“Jefferies (formerly Leucadia) is the largest independent mid-market investment bank in the U.S., with major positions in equities, convertibles, and corporate debt. It also owns Berkadia, a commercial mortgage joint venture with Berkshire Hathaway. Other assets include wealth management businesses, real estate company HomeFed, foreign exchange dealer FXCM, and Linkem, an Italian wireless telephone business with over 500,000 customers.
“Having reached a five-year high at 24 in January 2020, Jefferies’ share price halved in the March pullback. It has since recovered strongly, reaching an all-time high of 27 this month on the back of excellent results.
“For the 2020 fourth quarter (to Nov. 30), Jefferies recorded record revenues of $1.6 billion. Operating income was a record $406 million, and net earnings of $307 million ($1.11 per share) also set a record.
“For the full fiscal year, the company recorded records across the board. Revenues were $5.2 billion, operating income was $1.2 billion, and net income was $775 million ($2.65 per share). The results were driven by very strong underwriting and trading performance.
“Jefferies raised its quarterly dividend by 33% to $0.20 per share. The company also repurchased 42.1 million shares for $813 million, equivalent to a price of $19.29 a share.
“Jefferies is a Buy. The shares are selling at a 32% discount to its book value of $37.65 a share and a 7% discount to its tangible book value. With a one-third increase in its dividend and with its strong performance from its investment banking activities, the shares are good value.”
Financial Stock to Buy: Signature Bank (SBNY)
Signature Bank (SBNY) was contributed by Mark Skousen & Jim Woods of Skousen & Woods Fast Money Alert. They recommended Signature Bank because:
“Today, we’ve identified a fast-money stock that has been moving higher as a result of several major tailwinds. Those tailwinds are the upcoming fiscal stimulus, an economic return to normalcy due to the COVID-19 vaccine and improvement in the number of case counts and death rates and the rising tide of higher Treasury bond yields.
“That stock is Signature Bank. The New York-based commercial bank offers a wide range of business and personal banking products and services, mainly to customers in New York and the surrounding regions.
“SBNY shares have been on a tear as of late. In fact, just since the start of this very young 2021, shares are up 40%. That’s a huge fast-money ride, but it is by no means over yet, in our opinion.
“Fundamentally, SBNY recently posted fourth-quarter earnings that bested expectations, with earnings per share of $3.26, a record high. And, that metric was up more than 18% from the fourth quarter of 2019. Most impressively of all, the bank grew its net interest income (a bank’s overall profit on loans), by about $56 million in Q4 vs. the same quarter a year ago, and we expect that growth, as well as loan growth, to continue to sustain earnings growth.
“So, let’s buy Signature Bank at market, with a protective stop at 154.
“For those willing to take a bigger bet, we recommend you buy the SBNY June 2021 $200 call options (SBNY210618C00200000) at market. The call options last traded for $13.10 and expire on June 18.”
As the economy continues to recover, we’ll be looking to recommend some more financial stocks, many of whose shares have been unfairly pummeled due to the COVID-19 outbreak.
Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. As a lecturer and educator, Nancy has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show. She has also taught finance, economics and banking at the college level, and has been quoted extensively in The Wall Street Journal, Investor’s Business Daily, USA Today, and BusinessWeek. Now let her give you the tools and resources, including a monthly magazine, for gaining the peace-of-mind to live comfortably now and in retirement in her Cabot Money Club.Learn More >>