I do understand the urge to get back into a sector and recoup losses—and the current dangers of the financial sector. Today, the financial sector is leading Wall Street with a 1% gain. Top performers include Morgan Stanley (MS), Wells Fargo (WFC), Moody’s (MCO) and Ventas (VTR).
However, investors have been hurt by a number of false rallies in banking stocks over the last five years and I don’t want that to happen to you, so we’ll dive into three distinct area of financials and see if there are any safe ways to invest.
Join me in this in-depth look at seven companies and the financial sector in today’s blog.
Let’s start with major diversified financial stocks. These companies aren’t just banks because they are involved in just about every aspect of the financial sector. The key here is that it isn’t just about getting people to open savings accounts.
Bank of America (BAC) is a cautious buy right now. Before I make a single stock recommendation I put the stock through rigorous fundamental screens to make sure it has a solid foundation that protects it from market volatility.
For the past few years, BAC had been stuck in sell territory. However, towards the end of 2012, there was a surprising uptick in buying pressure, so much so that BAC now receives a B for its Quantitative Grade. However, the company is not completely out of the water yet. On the fundamentals side, BAC fails in three crucial categories. The company is not growing its sales or margins and its return on equity leaves something to be desired. But in the past quarterly announcement Bank of America did firm up earnings growth and its track record of beating analyst estimates. So BAC receives a B for its Fundamental Grade, making it a B-rated buy overall.
Citigroup (C) is another diversified financial company that has made 2013 its comeback year: The stock has gapped up 30% since the New Year. But there is still plenty of room for improvement: Citigroup has been able to get earnings growth and cash flow moving in the right direction, but is still lacking the sales growth and return on equity it needs to recover in full force.
Notably, Citi holds more Spanish debt than any other U.S. bank, and it was hit particularly hard during the 2008 financial crisis. But the analyst community does expect that this year will hold better fortunes for Citigroup; the consensus calls for 27% earnings growth this year and modest revenue growth.
JPMorgan Chase (JPM) has become the largest bank in the United States in terms of assets; it currently boasts a $2.3 trillion portfolio. This has been a mixed year for JPM, which has spent one month at a sell, several months at a hold, and the past few months as a buy. Lately, buying pressure has improved to the point where JPM receives an B for its Quantitative Grade.
Meanwhile, the company has succeeded in ironing out some of the kinks on its balance sheet. JPM receives strong ratings for seven of the eight fundamental metrics I graded it on, including earnings growth, cash flow and return on equity. JPMorgan receives a C for earnings growth, and with analysts expecting profits to fall 4.3% this quarter due to rising interest rates, that won’t likely change anytime soon. Even so, JPM receives a B for its overall Fundamental Grade.