Five Financial Stocks Under $10 Poised To Explode

The market swings of August have resulted in some companies trading at an even sweeter valuation. This includes companies operating in the financial sector, which has slid by more than 6.7% since August. Things are already starting to look up for the industry as evidenced by the greater than 1.5% gains it’s achieved since late August. With this in mind, we analyzed the data and came up with a list of the top five financial companies with stocks priced at less than $10, making them an affordable venture for retail investors. The companies are ranked by popularity in terms of the number of hedge funds invested in them from those funds which we track (the best of the best), which gives them the backing of the sound research that these firms carry out prior to entering their positions.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by around 60 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

5. MBIA Inc. (NYSE:MBI)

Investors with Long Positions (as of June 30): 28

Aggregate Value of Investors’ Holdings (as of June 30): $216.64 Million

The popularity of MBIA Inc. (NYSE:MBI) among the hedge funds that we track largely remained the same during the second quarter, but the total investments took a substantial hit as the stock price tumbled by nearly 30% at the end of June owing to the municipal bond insurer’s exposure to Puerto Rico. MBIA had insured Puerto Rican bonds worth more than $4.5 billion. About $1.4 billion of that debt is related to the Puerto Rico Electric Power Authority. MBIA Inc. (NYSE:MBI) recently filed a petition with the company urging them to temporarily increase their base rate, which has remained the same since 1989. Ron Gutfleish‘s Elm Ridge Capital is the largest stockholder of MBIA Inc. (NYSE:MBI) within our database, holding about 5.10 million shares.

4. ICICI Bank Ltd (ADR) (NYSE:IBN)

Investors with Long Positions (as of June 30): 29

Aggregate Value of Investors’ Holdings (as of June 30): $522.29 Million

ICICI Bank Ltd (ADR) (NYSE:IBN)’s stock dropped by a little over 2% during the June quarter, and hedge funds were bearish towards the company during that time. After slumping even more in the third quarter, the stock is now down by about 25% so far this year. However, the Indian bank recently received an upgrade by both Goldman Sachs and Standpoint Research to a ‘Buy’ rating. Ken Fisher‘s Fisher Asset Management hiked its stake in ICICI Bank Ltd (ADR) (NYSE:IBN) to 10.26 million shares valued at $106.87 million during the April-June quarter.

3. Hudson City Bancorp, Inc. (NASDAQ:HCBK)

Investors with Long Positions (as of June 30): 34

Aggregate Value of Investors’ Holdings (as of June 30): $657.90 Million

The popularity of the $5.02 billion community and consumer-oriented retail savings bank increased slightly during the second quarter in terms of total hedge fund ownership. This came despite a 2.8% decline in the stock price during the quarter, while so far this year Hudson City Bancorp, Inc. (NASDAQ:HCBK)’s stock is trading down by about 8.4%. As far as recent performance of the company is concerned, Hudson City managed to beat the bottom line estimates for its second quarter results by delivering EPS of $0.07 compared to the expected $0.01, but revenues of $56.6 million were not only $13.18 million lower than estimates, but also marked about a 52% slide on a year-over-year basis. Clint Carlson‘s Carlson Capital, Hudson City Bancorp, Inc. (NASDAQ:HCBK) top shareholder within our database, increased its holding by 4% during the second trimester to 10.46 million shares.

2. Genworth Financial Inc (NYSE:GNW)

Investors with Long Positions (as of June 30): 37

Aggregate Value of Investors’ Holdings (as of June 30): $471.31 Million

Hedge funds were enthusiastic about Genworth during the June quarter, but things could be looking different this quarter, as the stock slid by more than 26% during August on the heels of its disappointing second quarter financial results. Genworth Financial Inc (NYSE:GNW) missed both the top and bottom line expectations in those results due to stagnant net investment income and historically-low lending rates. On top of all this the company has missed EPS estimates for the last five quarters now. Consequently, Raymond James downgraded the company to ‘Outperform’ from ‘Strong Buy’. Currently, Genworth Financial Inc (NYSE:GNW)’s valuation looks extremely cheap, with a forward earnings multiple of just 4.35, which makes it an interesting pick from a long-term investment point of view. Eight of the top ten stockholders of the company among those that we track, hiked their stakes during the April-June quarter. The list was headed by ClearBridge, which holds about 9.34 million shares.

1. Regions Financial Corp (NYSE:RF)

Investors with Long Positions (as of June 30): 44

Aggregate Value of Investors’ Holdings (as of June 30): $973.73 Million

During the second quarter, Regions Financial gained slightly greater traction among professional money managers. Although Regions Financial Corp (NYSE:RF)’s stock price has fallen by more than 15% year-to-date, the $12.06 billion company has sizable future prospects, the evidence of which can be found in the insider purchase by CFO David Turner earlier this year to the tune of 65,000 shares. Moreover, Raymond James upgraded the stock to ‘Strong Buy’ from ‘Outperform’ at the end of August. Regions Financial is also on Goldman Sach’s top ten list of stocks poised for high dividend increases for the 2015-2016 fiscal years, with an expected dividend growth of 17%. Regions Financial Corp (NYSE:RF)’s current dividend yield stands at 2.69% and the company has a payout ratio of 29%. Richard S. Pzena‘s Pzena Asset Management increased its holding in Regions Financial by 40% during the second quarter to a whopping 17.06 million shares.

Disclosure: None