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What are we looking for?

The U.S. Financial Sector has continued a rebound that started back in December. The Financial Select Sector SPDR Fund (XLF) has gained 17.2 per cent year-to-date and 55.2 per cent over one year.

We will be using Trading Central Strategy Builder to search for U.S.-listed financial companies with strong profitability, bullish price momentum and reasonable valuations.

The screen

We begin by setting a minimum market capitalization threshold of US$15-billion to focus on the largest companies in the sector. To find stocks with strong profitability for shareholders, we will screen based on a return on equity ratio of 5 per cent or more. Return on equity measures how effectively a company is at converting invested capital into income. Return on equity is a key metric in the banking industry.

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To ensure we don’t overpay for our investments we will screen for companies with reasonable valuations based on a price to book ratio of 1.7 or less, which is slightly better than the average for the sector and a P/E ratio of 15 or less. The average P/E of the S&P 500 Diversified Financials and S&P 500 Banks sectors are 21.7 and 19.2, respectively.

Finally, we added a four-week price-performance requirement of 10 per cent or better in order to get the top 10 best-performing companies that are indicating upside price momentum.

We have also included dividend yield, year to date and one-year returns 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

U.S.-listed financial companies with strong profitability

RankCompanyTickerMkt. Cap. (US$ Bil.) ROE (%)P/BP/E4W Perf. (%)YTD Perf. (%)1Y Perf. (%)Div. Yld. (%)Recent Price (US$)
1MetLife Inc.MET-N53.57.40.710.610.028.881.63.060.30
2Manulife FinancialMFC-N41.612.31.19.311.020.552.64.121.64
3Principal Fin'l GroupPFG-Q16.79.01.012.113.023.570.63.730.91
4CIBCCM-N44.111.01.513.710.815.458.74.799.16
5Bank of MontrealBMO-N56.310.61.413.514.014.965.83.987.75
6Bank of Nova ScotiaBNS-N75.810.41.514.913.016.247.64.663.10
7Morgan StanleyMS-N156.012.71.712.911.821.2125.41.783.19
8Goldman Sachs GroupGS-N118.010.91.413.812.429.7991.5342.49
9State Street Corp.STT-N29.310.01.213.212.314.453.62.583.12
10Cincinnati FinancialCINF-Q17.111.81.614.219.321.618.12.4104.90

Source: Trading Central

Our screen results include four familiar names, headquartered in Canada, with dual listings here and in the United States: Manulife Financial Corp., Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia.

Topping our list is global insurance giant MetLife Inc. The U.S. company has the lowest price-to-book on our list at 0.7. The current P/E ratio is the second-lowest at 10.6. Looking at performance, the stock has the second-best one-year performance on our list at 81.6 per cent. The stock price is approximately 6 per cent below its all-time high, which was posted back in October, 2007. A breakout to new record highs could set the pace for a new long term uptrend.

Manulife Financial came in second place on our list. The company, based in Toronto, has the second-highest return on equity on our list at 12.3 per cent and the lowest P/E ratio of 9.3.

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Multinational investment bank Morgan Stanley has the largest market cap on our list at US$156-billion. The U.S. company also boasts the best one-year performance return on our list at 125.4 per cent. The stock is just 10 per cent below its all-time high, set back in September, 2000.

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.

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