Citigroup Inc (C), Discover Financial Services (DFS), Metlife Inc (MET) – U.S. Financials: 1 Proposed Portfolio

Trading at 9.9 times 2013 earnings and paying a 1.7% cash dividend, I think Discover Financial Services (NYSE:DFS) is a clear bet for anyone who wants exposure to the US financial industry.

Even when Discover Financial Services (NYSE:DFS) is not one of the biggest financial institutions in the US (its market capitalization is $23 billion), I would assign the company a 30% portfolio weight.

Metlife Inc (NYSE:MET) is a global insurer (with operations in over 60 countries) but it is, above all, a US financial company. A few days ago, it was the company’s annual investor day. The most important highlights were around the management’s commitment to increasing the capital efficiency of MetLife’s businesses over time. I can not help to trust Met’s management when they have been driving such outstanding results.

For the first quarter this year, Metlife Inc (NYSE:MET) reported 1Q’13 operating EPS of $1.48, well ahead of the consensus estimate of $1.30. According to the company’s reports, “The main source of the beat was strength in Asia, U.S. retail, and EMEA, which more than offset a modest shortfall in Latam and Group Benefits.”

Trading at 7.7 times 2013 earnings and 0.88 times book value, Metlife Inc (NYSE:MET) pays a 2.62% cash dividend yield and has a $600 million expense savings goal in place. I think the stock is a great idea if you want exposure to U.S. insurers.

Since Metlife Inc (NYSE:MET) is the only insurer in the portfolio, I would assign the company a 25% portfolio weight.

The bottom line

The portfolio above is well-diversified across the U.S. financial industry, given that it has been built with only three companies, and provides good value. Even if the portfolio currently pays a (very low) 1.2% cash dividend yield, it gives you great upside potential going forward, given that financial companies should be raising dividends fast when the economy finally stabilizes.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc (NYSE:C).

The article U.S. Financials: 1 Proposed Portfolio originally appeared on Fool.com.

Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.