10 Great Financial Stocks With Big Discounts From Book Value – 24/7 Wall St.
Bank and finance
There has been an incredible outperformance of growth over value in recent years. When leading internet and cloud, smartphone and IT companies lead America’s new economy into a pandemic, it’s hard to convince investors to look at some of the boring cyclical stocks that are categorized as “value stocks.” “.
However, nothing lasts forever, and it may finally be the case now that the darlings of growth on the stock market saw their value brutally sanctioned in September. A simple way for buyers of value stocks to assess the true value of a business is through traditional book value. In short, this is what assets are worth on a net basis after paying off 100% of a business’ debt and other liabilities it owes.
24/7 Wall St. sifted through the S&P 500 financial sector for financial firms trading with the largest discounts compared to their reported book values. It may be different from a screen to tangible book values, because in a disruption scenario it is much more difficult to assign values ââto trade names, values ââof past acquisitions, patents and brands and d ‘other intangible assets. Yet the reported book value is most commonly used as a starting point by value equity investors.
It turns out that many key stocks are easily valued below their stated book values. That doesn’t mean that all analysts would call these stocks âflashy buysâ or anything like that. Some discounts from book value are due to difficult business conditions. In other cases, it’s because the book value is expected to continue to drop, or maybe the business is losing money or not performing as well as its peers.
In the financial sector in particular, low interest rates are depressing the income of banks and long-term insurance companies. The low rates make new long-term life insurance policies more expensive because of the lower expected rates of return for decades to come (ie 1.42% for the 30-year Treasury bond yield). Banks are also facing more credit losses than expected a few months ago, and higher inflation with a promise of rates close to 0% for a long time will eat away at their real yields.
In a Finviz screen, we evaluated discounts against book value and transaction history, as well as consensus pricing targets from Refinitiv analysts. We also included news developments or other colors for the trends, and we took a look at what 2019 earnings looked like to see where they would be valued at current prices if the recession hadn’t erupted so strongly.
Keep in mind that any analysis of book value for value-oriented investors does not imply that stocks have bottomed out or that their book value will rise. Some financial stocks have continued to underperform and their stock charts are not looking exactly good. Some book values ââshould also tend to decline in the coming quarters.
1. Lincoln National: 0.29 times book value
Lincoln National Corp. (NYSE: LNC) is an operator of multiple insurance and pension companies under the umbrella of Lincoln. It covers annuities, pension plan services, life insurance and group protection. One problem that has come into play is that its dividend may be at risk, even though the company is expected to post profit gains in 2020 and 2021. The economy was so fragile in 2009 that Lincoln reduced its dividend to a penny per quarter, and the dividend has now only returned to pre-Great Recession levels over a decade ago.
Lincoln National closed at $ 32.05 on Monday, in a 52-week range of $ 16.11 to $ 62.95. It has a market cap of $ 6.3 billion and the current dividend yield is 5.2%. To determine where normalized earnings could return in the future, note that the company reported EPS of $ 6.71 for full year 2019, which would value it at 4.8 times prior earnings.
2. Unum Group: 0.32 times the book value
Unum Group (NYSE: UNM) looks cheap, and many investors are quickly hoping the insurer’s earnings will hold up. While down from a high well above $ 50 a share at the end of 2017, the stock is actually lower than it was after the market rally of 2009 boosted its shares. It also comes with a monster dividend, but Unum operates insurance (financial protection) in the United States and internationally in the form of disability, life insurance, closed block, death and dismemberment. and other products.
Unum Group closed at $ 17.08 on Monday, in a 52-week range of $ 9.58 to $ 31.32. It has a market capitalization of $ 3.5 billion. The insurance company also has a current dividend yield of 6.9%. To determine where normalized earnings could return in the future, note that the company reported EPS of $ 5.44 for full year 2019, which would value it at 3.2 times prior earnings.