Following news Thursday that Warren Buffett's Berkshire Hathaway will invest $5 billion in Bank of America, will investors take this as a sign of confidence in the financial sector?
"The fact that Warren Buffett stepped in at this point to buy the stock (BAC) selling at about half book provides some confidence to investors that maybe there is some value here," said Phil Orlando, chief equity market strategist at Federated Investors during an interview on Power Lunch.
"Perhaps there is some capital-raising that needs to go on, but we have come down a significant amount over the past month or so, and maybe it is time to start to sift through the market."
One of the metrics by which some financial firms appear to be undervalued is price to book value. When this ratio is less than one, a company is believed to be selling below its theoretical liquidation price and may be viewed as a value opportunity.
Bank of America, for example, is selling at a price to book ratio of 0.38, near the levels seen during the financial crisis.
CNBC.com ran a stock screen of the S&P 500 financial sector looking for companies with a price to book ratio less than 1, positive earnings in the last two consecutive quarters in relation to the same period in 2010, and relative low P/E multiples. JPMorgan Chase, State Street, Fifth Third Bancorp and Capital One Financial are four of the stocks that met this criteria.
Bank of America
Price to Book Value: 0.38
Price to Tangible Book Value: 0.62
Return on Equity (ROE): 3.87
P/E ttm: N/A
Dividend Yield: 0.52%
Mean Price Target Among 25 Analysts: $12.98
YTD Percent Change: -43%
Subindustry: Diversified Financial Services
JPMorgan Chase
Price to Book Value: 0.83
Price to Tangible Book Value: 1.14
Return on Equity (ROE): 9.9
P/E ttm: 7.62
Dividend Yield: 2.8%
Mean Price Target Among 29 Analysts: $53.95
YTD Percent Change: -16%
Subindustry: Diversified Financial Services
State Street
Price to Book Value: 0.95
Price to Tangible Book Value: 1.53
Return on Equity (ROE): 11.5
P/E ttm: 10.57
Dividend Yield: 2.14%
Mean Price Target Among 21 Analysts: $54.03
YTD Percent Change: -28%
Subindustry: Asset Management & Custody Banks
Fifth Third Bancorp
Price to Book Value: 0.75
Price to Tangible Book Value: 0.92
Return on Equity (ROE): 3.36
P/E ttm: 9.91
Dividend Yield: 2.47%
Mean Price Target Among 30 Analysts: $15.51
YTD Percent Change: -34%
Subindustry: Regional Banks
Capital One Financial
Price to Book Value: 0.74
Price to Tangible Book Value: 1.38
Return on Equity (ROE): 11
P/E ttm: 5.7
Dividend Yield: 0.46%
Mean Price Target Among 18 Analysts: $60.17
YTD Percent Change: +2%
Subindustry: Consumer Finance
Source CNBC Analytics, Capital IQ and Thomson Reuters
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