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Oppenheimer: A Low-Risk Banking Stock

Oppenheimer set to benefit from 10-year bond yield and low trading revenue reliance.

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Oct 11, 2021
Summary
  • This is a firm with high segment growth but a low reliance on revenue, which means it's low-risk and high growth.
  • According to key metrics, Oppenheimer is undervalued.
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Oppenheimer (

OPY, Financial) is a financial services firm located in the United States. The firm's stock has been overlooked for much of the past year but has gained by more than 100% in value during the same time. Let's take a look at why I remain bullish on the stock even after its strong recent runup.

10-year yield

Financial stocks usually perform well with a rising long-term bond yield. The consensus is that yields will rise in 2022 due to the anticipation of increased interest rates (bond yields and interest rates are correlated).

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Source: PortfolioVisualizer

As we can see in the above graph, Oppenheimer's stock has a negative correlation with the 10-year U.S. treasury bond price, which means that it rises with the yield. If this trend continues to hold true in the future, then it seems that Oppenheimer is set for further capital gains.

Low-risk

Although it has a high beta of 1.13, I see Oppenheimer as a low-risk financial stock. The reason for my thinking is its low reliance on trading profits, which represent only 2.4% of its total revenue. A banking stock tends to be less risky when it makes the minority of its earnings from trading, and I think especially with a market correction anticipated, you'd be better off selling stocks that generate a large amount of their revenue from trading.

Valuation

Oppenheimer's stock is of good value with a price-earnings ratio that is 65.39% lower than the sector average. The price-sales and price-book ratios also trade 86.46% and 32.20% lower than their respective sector averages.

The bank's earnings per share beat analysts' expectations by $0.16 in the previous quarter, and if the growth can continue, the stock price will most likely trade higher. Oppenheimer can still be considered an emerging big bank, which means it's a growth stock in the sector that investors could profit from dearly.

Final Word

I consider Oppenheimer to be a low-risk bank stock due to its low reliance on trading revenues as well as its general EPS growth. The stock is undervalued according to key metrics and could provide investors with solid returns.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
Rating:
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