Without issuing a rating, Hagerman says they’re too expensive.
“Right now we’re looking at a group trading just north of 13 times forward earnings, above the relative S&P multiple,” he said.
Year to date, the financials sector has outperformed the S&P 500 indexby 4.18 percent. Some might say a 13 times multiple is justified, compared to the S&P 500 forward price to earnings multiple of 12.7.
But Hagerman thinks extended low-interest rates, likely reaffirmed in the Federal Reserve’spolicy meeting next week, is “a good reason to start taking profits off the table.”
Instead, Hagerman encourages investors to “rotate out ofhigher beta names,” and into quality names such as PNC Financial Services Group, Fifth Third Bancorpand Wells Fargo,each of which have a “buy” rating from Sterne Agee.
“Higher beta” is simply a comparison between a stock and the index. For example, if you have a stock with a beta of 2, the market always has a beta of 1. Such that if the market goes up 1 percent, you expect the stock to go up 2 percent.
If you think the market will go down, perhaps Hagerman’s low-beta buy list is for you.
“They're going to do well,” Hagerman added. “They’ve got a nice growth trajectory coming on board for the course of the year. Investors are going to be rewarded for getting into those names.”
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Todd Hagerman does not personally own PNC, Fifth Third, or Wells Fargo. Sterne Agee does, however, make a market in these securities.