by Louis Navellier | June 1, 2010 7:11 am
One stock market sector that has defied the most disciplined trading strategy in the last few years has been financials. Investment in banks and financial stocks changes quickly, but let me take the guesswork out of investing for this week with 12 hot financial stocks to buy and 12 stocks to sell that are “dogs with fleas.” Among the favorites on my list the best stocks to buy are emerging market bank stocks like BanColombia S.A. (CIB) and regional banks like First Citizens Bancshares Inc.(FCNCA) and Signature Bank (SBNY). And right now, most of the worst financial stocks are tied up in capital markets and Europe financial investments suffering from sovereign debt problems in Greece, Spain and elsewhere. Stocks to sell include Netherlands bank ING Groep N.V. (ING) and Switzerland’s Credit Suisse (CS), along with U.S. investment banks Charles Schwab (SCHW) and Northern Trust (NTRS).
This goes to show the strange double-edged sword of financial stocks and investment strategy tied to this sector. Investment in banks and financial stocks in the wake of the Lehman Brothers bankruptcy has been tricky since the failure of Lehman Brothers. On the other hand, the resurgence of some bank since the lows of 2009 has been dramatic, with massive profits as shares have doubled or tripled.
Related Article: 5 Reasons to Buy Bank of America (BAC) Stock
So how can you tell the difference between a stock to buy and an investment to sell? The news is complicated, and may cause your trading strategy more confusion than clarity. Congress is fresh off a long Memorial Day weekend recess, and financial regulations are front and center. At the same time, disgraced financial stock American International Group (AIG) is deadlocked in negotiations with insurance giant Prudential (PRU) over the sale of its Asian operations as the company looks to sell some assets in the wake of the taxpayer bailout prompted by the financial crisis. To top off the drama for banking stocks, the number of bank failures is at 78 so far in 2010, on pace to top the record 140 in 2009 and prompting worries that the FDIC is running out of money.
My solution to all this is deceptively simple: Look at the fundamentals of any investment, and the numbers will tell you whether its a good stock to buy or whether your stock trading strategy is better served in other opportunities. Let me show you what I mean with my list of 12 financial stocks to sell now to protect your money:
Take the giant financial stock ING (ING). The company was recently downgraded by Keefe Bruyette to “market perform” from “outperform.” And while ING did top Wall Street estimates in its recent earnings report on May 12, the company is improving over significant losses in previous quarters and doesn’t have the momentum investors can have confidence in just yet. On top of that, its exposure to European debt woes — the Netherlands uses the euro as its currency — makes this stock very unpopular with investors. The result has been a 20% decline in ING stock year-to-date.
On the investment bank side, let’s look at Northern Trust (NTRS). NTRS provides asset servicing, fund administration and investment management for both individuals and institutions. You would think that after the stock market has soared since the 2009 lows that this investment bank would be back on the right track. Well, not so. Northern Trust earnings recently fell well short of Wall Street estimates on the first quarter, a at 64 cents a share instead of a projected 72 cents. That double-digit percentage miss coupled with a projection of a -11% decline in revenue for the current quarter has held back this stock. The May 25 initiation of coverage by Jeffries with a “hold” rating only adds fuel to fire. This is clearly not an investment to get your money behind.
Related Article: Is Goldman Sachs (GS) Worse Than BP?
The stories are the same for the other 10 stocks on my list of financial investments to sell right now. Here they are, complete with their industry and market cap:
|Symbol||Company Name||Industry||Market Cap (B)|
|BBVA||Banco Bilbao Vizcaya Argentaria||Commercial Banks||$38.8|
|BXS||BancorpSouth Inc.||Commercial Banks||$1.6|
|CFFN||Capitol Federal Financial||Thrifts & Mortgage Finance||$2.4|
|SCHW||Charles Schwab Corp.||Capital Markets||$19.5|
|CS||Credit Suisse Group||Capital Markets||$44.7|
|FII||Federated Investors Inc.||Capital Markets||$2.3|
|ING||ING Groep N.V.||Diversified Financial Services||$30.0|
|KCG||Knight Capital Group Inc.||Capital Markets||$1.4|
|NDAQ||NASDAQ OMX Group||Diversified Financial Services||$3.9|
|NTRS||Northern Trust Corp.||Capital Markets||$12.3|
|NYX||NYSE Euronext||Diversified Financial Services||$7.5|
|PBCT||People’s United Financial Inc.||Thrifts & Mortgage Finance||$5.1|
On the other side of the coin, you can see the numbers also back up my 12 stocks to buy right now. They include smaller banks that may not be the first investments you think of for your money, but these emerging market stocks and regional banks are certainly a good investment in my book.
Take Annaly Capital Management (NLY), a small real-estate investment trust. On May 7, JMP Securities upgraded Annaly stock to “market outperform” from “market perform.” The company has seen a number of upward revisions to earnings estimates in the last month or so, both for its next upcoming report and for the full year. Stock market analysts never like to get it wrong, so you can be sure that an improvement in earnings and revenue estimates for NLY stock means that this is a good investment in many investors’ eyes. To top it all off, this company is known for its monster dividend yields — currently calculated out to a 15% annualized rate based on previous payout history!
The real numbers, however, can be found in emerging market investments like Latin America banks. Take Argentina stock Banco Macro (BMA) and Colombia stock BanColombia (CIB). Both have significantly outperformed the rest of their sector and the market in general. BanColombia, for instance, is sitting on a +3% gain year-to-date even as the rest of the U.S. stock market has slipped by the same amount. That’s because both stocks have consistently grown revenue and earnings in recent quarters. BMA stock has seen four consecutive quarters of earnings growth and three-straight earnings surprises — the largest of which came last quarter with a +35% earnings beat for this Argentina stock. BanColombia has done just as well, with three consecutive quarters of earnings growth and four consecutive earnings surprises, the largest of which topped +28%.
Related Article: Why Emerging Markets China and India are Second to BRIC Investment Brazil
You can see why I’m so bullish on these financial investments right now. If you look closely at the numbers for the rest of this list of stocks to buy, you’ll see similar evidence of success. Here they are:
|Symbol||Company Name||Industry||Market Cap (B)|
|NLY||Annaly Capital Management||Real Estate Investment Trusts||$9.5|
|ACGL||Arch Capital Group Ltd.||Insurance||$3.9|
|BMA||Banco Macro S.A.||Commercial Banks||$1.6|
|CIB||BanColombia S.A.||Commercial Banks||$3.3|
|CSH||Cash America International||Consumer Finance||$1.1|
|CNA||CNA Financial Corp.||Insurance||$7.0|
|BCA||CorpBanca S.A.||Commercial Banks||$1.9|
|ERIE||Erie Indemnity Co.||Insurance||$2.6|
|FCNCA||First Citizens Bancshares||Commercial Banks||$2.1|
|ISBC||Investors Bancorp Inc.||Commercial Banks||$1.6|
|KFN||KKR Financial Holdings LLC||Diversified Financial Services||$1.3|
|SBNY||Signature Bank||Commercial Banks||$1.5|
As of this writing, Louis Navellier did not own any of the stocks mentioned here in personal or client portfolios.
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