Five Cheap Financial Stocks Hedge Funds Love

In December last year, the US Central Bank increased interest rates to 0.25%-0.5%. This was the first time the Fed had raised interest rates in the last decade. Theoretically, financial institutions should have benefited from this increase. However, as no further hikes have come so far this year, the financial sector has inched up just by 2.80% year-to-date.

Even though many stocks from the financial sector are trading at considerable prices, there are a bunch of stocks that can be considered overlooked, mainly due to the small market-cap and low share prices. However, hedge funds are keeping an eye on the entire sector and have piled into some financial stocks that are trading under $10 a share. In this article, we are going to discuss five of the most popular cheap financial stocks.

At Insider Monkey, we track around 740 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Kevin George/Shutterstock.com

MGIC Investment Corp. (NYSE:MTG) is engaged in the business of providing mortgage insurance and related services to lenders and government entities in USA. At the end of the second quarter, more than 30% of the company’s outstanding stock was held by 46 funds that we track, as compared to 37 a quarter earlier. The stock gained around 33% during the last three months, but is still over 10% in the red year-to-date and is trading at just 8 times forward earnings. The company reported solid results for the second quarter, with both earnings and EPS topping the estimates. Most analysts have positive ratings on the stock and the consensus price target stands at $9.80 per share, which implied an upside potential of 24%. In September, the company  delivered its August operating statistics, with insurance in force of $179.1 billion and and ending primary delinquent inventory 51,642 loans.

Regions Financial Corp (NYSE:RF)’s stock has returned more than 18% in the last six months, outperforming the S&P 500. Among the funds we track, 39 funds held $712.73 million worth of stock at the end of June, compared to 41 funds and $809.99 million, respectively, a quarter earlier. Regions Financial Corp (NYSE:RF) has a market cap of $12 billion and its stock sports a yield of 2.50%. Amid strong performance, Raymond James analyst David Long has recently downgraded the stock to ‘Outperform’ from ‘Strong Buy’ but maintained the $10.50 price target.