Skip to main content
number cruncher

What are we looking for?

U.S.-listed financial companies indicating decent valuations and upward price momentum in an improving sector amid earnings season.

The U.S. earnings season is upon us and almost half of the 61 financial companies in the S&P 500 have already reported. So far, the results have been stellar: 25 out of the 28 financial companies reporting have exceeded analysts’ consensus estimates.

The Financial Select Sector SPDR Fund (XLF) is the best performing sector in the S&P 500 over the past week, with a gain of 3.2 per cent, and the second-best performing sector year to date, with a gain of 38.2 per cent. This week we look for U.S. financial stocks that may benefit from a bullish earnings trend.

The screen

We will be using Trading Central Strategy Builder, our stock screener, to search for U.S. listed financial companies with strong profitability, stock price performance, and better-than-average valuations.

We begin by setting a minimum market capitalization threshold of US$10-billion to focus on larger, more established companies in the sector.

To find stocks with strong profitability for shareholders, we will screen based on a return on equity of 10 per cent or more. ROE is a measure of how effectively management has used invested capital to generate income.

To ensure we don’t overpay for our investments we will screen for companies with reasonable valuations based on a price-to-earnings ratio of 18 or less. The average P/Es of the S&P 500 Diversified Financials and S&P 500 Banks sector indexes are 18 and 11.5, respectively.

To get the top performing stocks with upside price momentum, we added a four-week price-performance requirement of 5 per cent or better, and the stock price must be within 10 days of its most recent 52-week high.

Finally, we will look for companies that are indicating a minimum growth rate in earnings per share of at least 2 per cent over the past five years. This measure provides a long-term view of how the company has grown its earnings.

We have also included dividend yield, as well as year-to-date and one-year price return for your reference.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.

What we found

12 U.S.-listed financial stocks with upward price momentum

RankCompanyTickerMkt. Cap. (US$ Bil.) ROE (%)P/E4W Perf. (%)Days Since New 52W High5Y EPS Grth. Rate (%)Div. Yld. (%)YTD Perf. (%)1Y Perf. (%)Recent Price (US$)
1Jefferies Fin'l GroupJEF-N10.316.66.915.8130.82.470.9109.342.05
2KKR & Co. Inc.KKR-N39.
3Fidelity National Fin'lFNF-N14.
4Zions Bancorp NAZION-Q10.114.99.414.4020.32.549.9116.665.10
6Comerica Inc.CMA-N11.214.310.918.202.93.355.6105.086.93
7Hartford Fin'l ServicesHIG-N24.912.312.26.0932.01.949.280.973.10
8Principal Fin'l GroupPFG-Q18.410.111.911.504.53.740.669.869.77
9Bank of MontrealBMO-N69.513.412.410.
10JPMorgan Chase & Co.JPM-N492.218.910.59.698.22.434.471.9166.52
11Royal Bank of CanadaRY-N151.
12Sun Life Financial Inc.SLF-N32.715.012.213.603.03.127.336.056.87

Source: Trading Central

Our screener ranks the list based on all performance and revenue criteria. Banks and insurance companies dominated the list.

Topping our list is Jefferies Financial Group Inc., a global diversified asset management company that always seems to make it to the top of our financial stock screens. Jefferies posted a new 52-week high a day ago to levels not seen since 2008. We wrote about Jefferies making a new 52-week high back on Aug. 26 and the stock price has gained about 13 per cent since then, proving the uptrend is not over. The stock has the best year-to-date performance on our list at an impressive 70.9 per cent. Even with the stock making new 52-week highs, the P/E is the second lowest on our list at 6.9. The five-year EPS growth rate for Jeffries is the highest on our list at 30.8 per cent.

Fidelity National Financial Inc. provides insurance services to the real estate industry. It has the second-best return on equity on our list at 30.7. The company is indicating a P/E of six, which is the lowest on our list even as the stock trades at a new record high this week.

Royal Bank of Canada, Bank of Montreal and Sun Life Financial Inc., the Canadian names on our list, are trading at new 52-week highs this week but have below-average five-year EPS growth rates compared with their U.S. counterparts.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

Editor’s note: The table in a previous version of this article misstated the recent prices of two stocks in the list. The recent price of RY-N should be US$105.21 (not US$56.61). JPM-N should be US$166.52 ( not US$107.25).

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.