There is one number that gives you an idea how well a company is doing, and it’s why all stocks are judged by this number: earnings.
But earnings are sliced and diced any number of ways. So, to keep things simple, many analysts rely on earnings growth — how much they expect a company to earn moving forward — to determine how to value a stock.
Some will even go to a price/earnings-to-growth ratio, which is basically a stocks price-to-earnings ration divided by its earnings growth rate. With each iteration of complexity in analyzing the number, the more nuanced the result.
As with many things on Wall Street, you can get lost in the nuance. So, for simplicity, let’s just stick to companies that are exhibiting solid earnings growth in a sector that isn’t really setting the world on fire these days, financials.
The three stocks we feature here are good examples of the variety of companies that make up the financial sector since we usually think only in terms of banks and brokerage houses. These companies have been quietly going about their businesses, increasing revenue quarter after quarter.
Let’s take a look at these three financial stocks to buy.
Manhattan Bridge Capital Inc. (NASDAQ:LOAN)
Manhattan Bridge Capital Inc. (NASDAQ:LOAN) is a unique niche player. Structured as a real estate investment trust, LOAN specializes in short-term, secured, non–banking loans to real estate investors to fund its acquisition and construction of properties in the New York metropolitan area.
The loans are usually only for up to a one-year term with interest payments due monthly and the principal due at the end of the loan. They’re secured by the property and typically range from $50,000 – $1,400,000.
Borrowers are typically looking for loans to finance purchases and repairs for the purpose of quick sales; loans for new construction of one- to three-family homes; or bridge loans to purchase small income producing properties.
While LOAN hasn’t reported on Q4 yet, its previous nine-months were very encouraging year over year. Through Q3, revenues were up almost 20%, and net income for the nine month period was $1,058,264, versus net income $524,991 for the same period in 2013, an increase of approximately $533,000. That’s more than a double in net income growth.
What’s more, the fact that Manhattan Bridge Capital is registered as a REIT gives it certain tax advantages, and LOAN kicks off a 7.95% yield.
Chatham Lodging Trust (NYSE:CLDT)
Chatham Lodging Trust (NYSE:CLDT) is another niche REIT play.
CLDT invests in upscale extended-stay hotels — Hyatt Place, Hyatt House, Hilton Homewood Suites, Marriott Residence Inns and premium-branded select service hotels — Marriott Courtyard and Hampton Inns.
Chatham Lodging specifically chooses markets where there are high barriers to entry from competition and that offer options for both business and leisure travelers.
CLDT is becoming increasingly shareholder friendly in 2015. In January, CLDT announced a 25% increase to its dividend (now sitting near 4%). This month, CLDT announced it was going to monthly dividend from a quarterly distribution.
The travel and tourism industries are growing briskly again, and this will certainly help CLDT keep the revenue stream flowing. Plus, low rates mean building, and financing projects will help keep margins healthy.
AmTrust Financial Services Inc (NASDAQ:AFSI)
AmTrust Financial Services Inc (NASDAQ:AFSI) is a different breed of niche player. AmTrust is a small business property and casualty insurer.
And AFSI stock’s recent earnings report was a stunner.
For Q4 2014, operating earnings were $118.5 million, an increase of 20.3%, compared to $98.5 million in Q4 2013. For 2014, operating earnings totaled $458.4 million, an increase of 64.8% compared to $278.2 million in 2013.
Investment income was up 72% for the year as well. This is crucial since the real power of an insurance company is how well it manages all the cash it has. All that cash from premiums sits around until it has to be paid out in claims.
So, the goal is to get that cash to work for you as hard and safely as possible until it’s needed. It looks like AFSI managed to do that quite well.
AFSI’s loss ratio, the key indicator of an insurers strength, also improved for Q4 and for the full-year 2014. AFSI pays out a small dividend (about 1.8%), but it’s the growth that makes AmTrust stock so compelling.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.