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What are we looking for?

We want to find some wise investments within the U.S. financial sector.

"None!" shouts the chorus of flag-waving Canadian investors, who prefer stable domestic opportunities to any Wall Street behemoth that could fall prey to further regulatory zeal or rogue trader mischief.

There is some justification to that chauvinism. U.S. bank analysts have warned in recent weeks that regulations in the pipeline could challenge the structure of top-tier investment banks. And JPMorgan showed last month that it is still dealing with the financial fallout of the London Whale trading fiasco. But common wisdom also says that, at some point, these financial assets have to become a good investment again. So far this year, U.S. financial stocks are up almost 16 per cent, in line with the broader S&P 500 index. So let's see what the data say.

How we did it

We used Bloomberg to look for the stocks among the 44 financial services companies within the S&P 500 index that are trading at or below book value. That's correct, less than book value. While Canada's Big Six banks all trade above book value (from Bank of Montreal at 1.5 times, to Royal Bank of Canada at 2.2 times), there are 13 U.S. financial services firms trading at less than one times book value on the S&P 500.

What did we find?

We wanted to focus on the players with both low price-to-book value ratios and robust return on equity figures. Unfortunately, none of the 13 could boast of a return on equity of 10 per cent or more. Capital One Financial Corp. came very close, but performance slipped away quickly after that. Morgan Stanley and Bank of America proved more representative of the group with returns of about 5 per cent.

Return on assets is also another good measure for assessing financial stocks. Legg Mason Inc., Capital One and Regions Financial Corp. all scored well here, at close to 1 per cent or more. What is more consistent on today's list is momentum. All the stocks mentioned are trading at or near their 52-week highs, and the average price-to-earnings ratio is above the 13 times registered on the S&P Regional Banks Select Industry index. Investors are sensing value in these banks even if they still aren't yet firing on all cylinders again.

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