[转贴] Seven Stocks In Financial Sector For Next Year

Brainteaser

Year to date (YTD), NYSE Financial Index is the third best performer, among the major NYSE indices, with a return of 25.9%. Those sub sectors (real estate services; thrifts and mortgage lenders) that pulled down the performance of finance sector in the year ago period seem to have recovered a major portion of their lost ground. Should you expect good times continue into 2011?
YTD financial sector (10.02%) has outperformed S&P 500 (7.79%) by nearly 2.23 percentage points and I see this margin widening further in 2011. The reason being most of the problems (capital shortage, asset value write downs, etc) that faced financial sector are nearly behind us. For the financial services industry, 2009 was among the toughest operating environments in many decades. The year 2010 has been relatively good and 2011 is expected to be better.
On a broad level, we can classify financial sector into 10 sub sectors namely - Consumer Financial Services, Insurance (Accident & Health), Insurance (Life), Insurance (Miscellaneous), Insurance (Prop. & Casualty), Investment Services, Misc. Financial Services, Money Center Banks, Regional Banks, and S&Ls/Savings Banks.
There are nearly 2316 financial sector stocks to pick our seven stocks. I will try to build a diversified portfolio.
Underperforming/ S&p500 beating sub sectors in financial sector
The table given below captures sub sector performance over YTD and five years periods.

% Returns	YTD	5 Year
Insurance (Life)	(3.6)	(19.5)
Investment Services	2.0	(17.2)
S&Ls/Savings Banks	2.7	(68.0)
Consumer Financial Services	4.5	(37.8)
Money Center Banks	7.5	29.6
S&P 500	7.8	(3.4)
Insurance (Accident & Health)	8.0	(37.5)
Regional Banks	16.0	(60.2)
Misc. Financial Services	18.6	19.4
Insurance (Prop. & Casualty)	20.7	(33.9)
Insurance (Miscellaneous)	25.5	65.1

Since life insurance sector is yet to return to positive territory, I will avoid picking stocks from this sub sector.
I will pick two stocks each from Money Center Banks, Misc. Financial Services, and Insurance (Miscellaneous). I will pick the remaining one stock from any of these sub sectors.
Picks from Money Center BanksBarclays PLC (ADR) (NYSE: BCS: 16.7, -0.37)
Yesterday, Barclays PLC ADR closed trading at [url=]$17.07[/url], compared to 52 week range of [url=]$15.36[/url] and[url=]$24.11[/url]. The ADR's all time peak was set at [url=]$61.42[/url] on February 16, 2007. Currently it is trading at a relatively low P/E of 10.02.
Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 1.2%. Current consensus 12 month target price is at [url=]$22.46[/url], which I expect the stock to break by end July 2011. I am bullish on the stock as most of the earnings depressors have been addressed and also because it still retains a 19.9% economic interest in the enlarged BlackRock Group.
U.S. Bancorp (NYSE: USB: 24.72, -0.04)
Yesterday, U.S. Bancorp share closed trading at [url=]$24.76[/url], compared to 52 week range of [url=]$20.44[/url]and [url=]$28.43[/url]. The stock's all time peak was set at [url=]$37.99[/url] on September 19, 2008. Currently it is trading at a relatively low P/E of 16.05.
Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 6.0%. Current consensus 12 month target price is at [url=]$29[/url], which I expect the stock to break by end June 2011. USB aims to achieve several goals for long-term success, including: 10%-plus EPS growth, a 20%-plus ROE, reducing credit and earnings volatility, providing high-quality customer service, investing in future growth, and targeting an 80% return on earnings to shareholders. In banking, USB is maintaining a low-cost, highly efficient model and plans to grow organically and through smaller, fill-in acquisitions in higher-growth markets. I think 2011 could be the year of acquisitions for USB.
Picks from Misc. Financial Services
PIMCO Corporate Opportunity Fund (NYSE: PTY: 17, -0.07)
PIMCO Corporate Opportunity Fund is a closed-ended fixed income mutual fund launched by Allianz Global Investors Fund Management LLC. The fund invests in corporate debt obligations rated in the lowest investment grade category Baa or BBB and in the highest non-investment grade category Ba or BB. The fund focuses on intermediate maturity bonds across multiple industries and sectors. It employs fundamental analysis along with top-down approach to make its fixed income investments. The fund uses in-house research to make its investments. PIMCO Corporate Opportunity Fund was founded on December 27, 2002 and is based in Newport Beach, California. Current dividend yield is 8.1% which I think is acceptable.

Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE: ETG: 14.05, -0.02)
The Fund invests primarily in dividend-paying common and preferred stocks. The Fund may invest in Cash Management Portfolio (Cash Management), an affiliated investment company managed by Boston Management and Research (BMR), a subsidiary of Eaton Vance Management (EVM). EVM is the Fund's investment advisor.
Picks from Insurance (Miscellaneous)
Willis Group Holdings PLC (NYSE: WSH: 32.575, -0.195)
It is a global insurance broker. Its core businesses include aerospace, energy, marine, construction, financial and executive risks, fine art, jewelry and specie, and special contingency risks. WSH also conducts reinsurance broking activities, and in 2009 the company was one of the top three largest global reinsurance brokers according to Business Insurance magazine.
The company posted strong Q3 results. WSH's adjusted operating margin increased 150 basis in the first nine months of 2010, and still I see room for improvement on cost-cutting initiatives and accelerated top-line growth. I see a target price in excess of the current 52 week high of [url=]$34.98[/url].
Arthur J. Gallagher & Co. (NYSE: AJG: 28.61, -0.28)
Gallagher operates three business segments: Brokerage, Risk Management and Financial Services and Corporate, which contributed approximately 74%, 26% and less than 1%, respectively, to 2009 revenues. I am bullish on this stock mainly on account of its recent acquisitions such as Premier Risk Services, Inc., Behnke & Co., Inc., Old Greenwich Consulting Group, Benefits Unlimited, Inc., and Arkansas Insurance Agency.
Pick from Regional Banks
The Bank of New York Mellon Corporation (NYSE: BK: 28, 0)
Bank of New York Mellon provides a comprehensive array of services that enable institutions and individuals to move and manage their financial assets in more than 100 markets worldwide. The company has several core competencies: institutional services, private banking, and asset management. Its global client base includes a broad range of leading financial institutions, corporations, government entities, endowments, and foundations. BK has acquired over 90 businesses over the past 10 years, almost exclusively in its securities servicing and asset management areas. I see a target price in excess of the current 52 week high of [url=]$32.65[/url].