The financial sector has seen good performance over the past year, returning 20.78%. This is the third-highest performing sector over the one-year period after healthcare and technology, according to Morningstar’s performance list.
One method of researching stocks in this sector is to see which companies are popular among the gurus. GuruFocus’ All-In-One-Screener can be used to sort stocks with more than 150 filters. For this article, I selected “Financial Services” from the industry list, then in the Gurus tab selected the checkmark box for “Involved in Buy/Sell Activities.” By sorting the resulting list of stocks by number of guru holders, we can see the top five most popular financial services companies.
Bank of America (BAC, Financial)
During the first quarter, 18 gurus either initiated new positions in Bank of America, or added to their existing stakes. Joel Greenblatt (Trades, Portfolio) and David Tepper (Trades, Portfolio) are two investors who added the bank as a new holding.
Bank of America’s stock increased 11% over the past year and currently trades at $17.27, with a P/E ratio of 25.4 and P/S ratio of 2.23.
Over the past five years, revenue growth declined 15.5%, while EBITDA declined by 5.6% over the same time period. Last year, the bank reported net income of $4,833 million, down from $11,431 million the year before. The graph below shows the net income trend over time.
The dividend yield is 1.16%, which is close to the five-year high, and the payout ratio is 24%.
Fourteen gurus bought shares of Citigroup, which serves more than 200 million customer accounts and operates in 160 countries, during the first quarter. Larry Robbins (Trades, Portfolio) was the only guru to initiate a new position in the stock, while others including Bill Nygren (Trades, Portfolio) and Leon Cooperman (Trades, Portfolio) added to existing positions.
The stock rose 14% over the past year and now trades at $56.22, with a P/E ratio of 22.2 and P/S ratio of 2.2. When comparing the stock price to the Peter Lynch earnings line, it appears Citigroup is close to its fair valuation.
Citigroup reported net income of $7,313 million in 2014, down from $13,673 million the year before. Over the past five years, this figure has declined more than 5%.
Citigroup’s dividend yield is 0.14% — close to the five-year high — while the payout ratio is just 1%.
Berkshire Hathaway (BRK.B, Financial)
In the first quarter, 14 gurus increased their stakes in Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway, including Tom Russo (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), and Wallace Weitz (Trades, Portfolio).
Over the past year, the stock price increased 10% and is now priced at $139.90. The P/E ratio is 16.5 and the P/S ratio is 1.67. The company has seen consistent growth rates over the past five years, with revenue growing by 9.9%, and EBIT growing 25.5%.
EBIT per share in 2014 was $11.97, a slight decrease from $12.26 the year before. However, the EBIT trend over time has moved upward, as evidenced in the graph below.
Free cash flow has also steadily increased over time, save for a slight dip from 2011 to 2012.
American International Group (AIG, Financial)
John Paulson (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), and Steven Cohen (Trades, Portfolio) each initiated a new holding in AIG during Q1, while 14 other gurus increased their existing investments.
AIG’s stock rose 10% over the past year and now trades at $59.66, with a P/E ratio of 10.3 and P/S ratio of 1.3. The Peter Lynch chart shows the stock is undervalued when comparing the price to the earnings line, which was at $83.10 based on Q1 earnings.
EBIT per share in 2014 was $7.25, up from $6.32 the year before. On the other hand, net income decreased from $9,085 million to $7,529 million.
AIG’s dividend yield is 0.8%, while the payout ratio is a low 9%, indicating room for growth in the future.
Bank of New York Mellon (BK, Financial)
During the first quarter, David Einhorn (Trades, Portfolio) added Bank of New York Mellon as a new holding in the portfolio, while six other gurus, including Mario Gabelli (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio), added to current positions.
Bank of New York Mellon is a global investments company that also provides credit-related services. The stock price increased 22% over the past year and is currently priced at $43.34, with a P/E ratio of 19.2 and P/S ratio of 3.1.
In 2014, EBIT per share decreased marginally from $3.27 to $3.13. The graph below depicts the earnings trend over time.
Free cash flow also pulled out of the red to record to $3,693 million in 2014, up from $-1,251 million the year before.
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