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What are we looking for?

Top-performing companies in the financial-services industry that are benefiting from an improvement in the financial sector and overall market.

Looking at the broad market, the S&P 500 index has finally broken above a four-month consolidation period to new record highs. Defensive utility stocks, which have been outperforming the S&P 500 since July, have fallen slightly out of favour in the past 30 days, replaced by financial stocks. The Financial Select Sector SPDR Fund (XLF-NYSE) is up 7.5 per cent in the past month.

The screen

We will be using Trading Central Strategy Builder to identify well-valued U.S.-listed financial companies using traditional value investing criteria.

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We begin by setting a minimum market capitalization threshold of US$5-billion. We wish to focus on large-cap names in the market owing to the greater stability and safety that they offer.

Next, we will employ three basic value investing criteria to identify companies that would be of interest to investors looking for discounted financial stocks.

We will start by looking for companies with a price-to-earnings ratio less than the average P/E of the S&P 500 financial sector, which is currently at 15. We want financial companies with a price-to-book ratio less than two to demonstrate a strong balance sheet, and debt to equity of 1.5 or less.

We look for a dividend yield of at least 2 per cent, higher than that of the Financial Select Sector SPDR Fund, at 1.9 per cent.

We have also included year-to-date and one-year return with the requirement of positive performance.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities. Strategy Builder is available through leading retail brokers in Canada and around the world.

What we found

A lot of U.S. exchange-listed Canadian financial companies came up on our screen. No surprise there, the Canadian financial sector has a reputation of being one of the most solid globally. Topping our list is Manulife Financial Corp., largest of the three major Canadian life insurers by market capitalization, ahead of Sun Life Financial Inc. and Great-West Lifeco Inc. Manulife has the second lowest P/E on our list at 8.2 and an above-average dividend yield of 4.3 per cent. Looking at the recent price action, the stock has broken up to recent highs after surpassing key price resistance at the US$19 level. Year-to-date performance is the second highest on our list (after Sun Life) at 35 per cent.

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The largest insurer in the U.S. is MetLife Inc., which has the lowest P/E of 7.4 per cent. The company also has the lowest price-to-book ratio on the list, at 0.66, indicating good value and a strong balance sheet.

The investment ideas presented below 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.

Select U.S.-listed financial stocks

RankCompanySymbolMkt. Cap. (US$ Bil.) P/EDebt/Equity RatioPrice/Book RatioDiv. Yield (%)1Y Perf. (%)YTD Perf. (%)Recent Price (US$)
1Manulife Financial Corp.MFC-N35.38.20.31.024.316.635.019.16
2Ares Capital Corp.ARCC-Q7.810.10.31.063.98.517.818.68
3Principal Financial Group Inc.PFG-N15.410.10.31.074.116.527.456.16
4MetLife Inc.MET-N42.97.40.80.663.66.619.348.33
5Fifth Third BancorpFITB-W19.38.90.10.984.012.719.730.36
6KeyCorpKEY-N17.510.30.11.144.87.016.319.09
7Sun Life Financial Inc.SLF-N25.714.70.21.583.722.237.545.86
8Bank of Nova ScotiaBNS-N69.011.30.81.443.78.529.057.92
9Royal Bank of CanadaRY-N115.012.10.11.994.03.416.281.87
10BB&T Corp.BBT-N39.812.71.01.374.33.229.855.1
11Huntington Bancshares Inc.HBAN-Q14.510.91.21.363.510.827.814.96
12Toronto-Dominion BankTD-N101.011.61.31.654.41.924.757.72

Source: Trading Central

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

Editor’s note: A previous version of this article incorrectly showed MetLife Inc.’s dividend yield as 8.7 per cent. In fact, the yield is about 3.6 per cent.

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