We recently compiled a list of the Jim Cramer’s Exclusive List of 9 YEV Stocks. In this article, we are going to take a look at where Citizens Financial Group, Inc. (NYSE:CFG) stands against the other YEV stocks in Jim Cramer’s exclusive list.
Recently, Jim Cramer sifted through the S&P 500 to identify stocks that satisfy his criteria: yield, earnings growth, and value. He explained the need behind the criteria:
“In a market with huge year-to-date gains, you got to get a little more selective about what you buy. Which is why I created this three-part test, also known as tripartite test.”
To navigate this market, he developed a three-part evaluation framework, which he refers to as the YEV test. Cramer explained that the first criterion focuses on yield, specifically seeking stocks that offer better returns than the current yield on the 10-year Treasury, which sits slightly above 4%. The second criterion is outsized earnings growth, meaning he looks for companies expected to exceed the 14% growth forecast for the S&P 500 next year. Lastly, Cramer seeks value, targeting stocks priced lower than the S&P 500, which currently trades at around 21 times next year’s earnings estimates.
“We want stocks with higher yields than the 10-year Treasury, meaning 4% plus. We want faster earnings growth than the S&P 500. In the aggregate, that’s faster than 14%. And we want a price-earnings multiple lower than that of the overall S&P 500, which trades at 21 times next year’s earnings, which everybody says is a little elevated.”
While Cramer acknowledged that his criteria was challenging to meet, he successfully identified nine stocks that fit the YEV model. He noted that although the Federal Reserve has created a favorable environment for investors, resulting in substantial market gains, it is crucial to exercise caution when selecting stocks.
Observing the historical trends, Cramer pointed out that October has generally been a strong month for the market, yet he reiterated the necessity of being discerning in purchases. He encouraged viewers to consider these nine stocks as the top tier within the market. He went on to emphasize:
“Now, I want you to think of them as the elite of the elite. Not many companies can give you high yields, cheap stocks, and explosive earnings growth all at the same time… Here’s the bottom line: in a market like this one, you do need to be selective, which is why we’ve fallen back on yield, on earnings and on growth and on value. Okay, now these are all things that are very hard to find right now.”
Our Methodology
For this article, we compiled a list of 9 stocks that fit Jim Cramer’s YEV stocks criteria and were unveiled during his episodes of Mad Money from October 7 to October 10. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A financial advisor examining a client’s portfolio at a modern office workspace.
Citizens Financial Group, Inc. (NYSE:CFG)
Number of Hedge Fund Holders: 47
Cramer mentioned the Rhode Island-based Citizens Financial Group, Inc. (NYSE:CFG) during an episode of Mad Money and talked about its capital ratios and the ensuing benefits. He said:
“I like the regional banks here for roughly the same reason that I like the commodity chemical place. These stocks have been out of favor for a very long time, but they should do much better in a falling interest rate environment. Of course, some of the regionals are a lot better than the others. We don’t want exposure to the outfits that still haven’t recovered from last year’s mini-banking crisis.”
Cramer has expressed a favorable view of the bank, describing it as a strong operator. He mentioned that the stock is nearly back to its pre-Silicon Valley Bank collapse levels from last spring, a period that significantly impacted regional banks. Cramer believes that we are moving in a positive direction for these institutions.
He pointed out that regional banks faced severe pressure when the Federal Reserve quickly raised interest rates, followed by a prolonged period of elevated short-term rates. However, with the Fed now shifting towards cutting rates, Cramer emphasized that regional banks are likely to benefit, even if the rate reductions come at a slower pace. He stated, “We know that’s going to happen,” suggesting confidence in the eventual easing of monetary policy.
According to Cramer, the current economic landscape is quite favorable for regional banks. He remarked that the economy remains robust enough to make the term “soft landing” seem overly negative. With interest rates on the decline, he referred to the situation as “nirvana” for these banks, adding that credit losses are expected to decrease during this rate-cutting phase. Coming to the company, he said:
“It’s a Northeast bank, it’s called Citizens Financial Group. I haven’t focused on it since it was spun off by the Royal Bank of Scotland a decade ago. When you take a closer look at Citizens, it’s got some of the best capital ratios of large regional banks. That matters for a couple of reasons. First, it offers safety. This is how you know Citizens won’t be the next First Republic if we have another banking blow-up. But more importantly, in calmer times, it gives them [the] flexibility to do other shareholder-friendly things, dividends [and] buybacks. In fact, in late July, after hearing all the regional banks report second-quarter earnings, analysts at Deutsche Bank called Citizens Financial their top pick in the sector, citing strong earnings growth potential as net interest margins normalize, growth initiatives pay off like the private bank build-out and their expansion in New York City and mortgage demand bounced back thanks to lower rates. Deutsche Bank analysts also know that Citizen has been held back in recent quarters by some significant one-off items. But management is signaling that there shouldn’t be much more of an impact from that kind of thing going forward. That all sounds real good to me. So count me in as a believer in Citizens Financial.”
Citizens Financial Group (NYSE:CFG) functions as a bank holding company that specializes in offering a wide range of retail and commercial banking products and services. It operates an integrated Consumer Banking experience and it boasts around 3,300 ATMs and approximately 1,000 branches located across 14 states and the District of Columbia.
In the second quarter, Citizens Financial Group (NYSE:CFG) reported commendable performance, characterized by strong fee generation across its Capital Markets, Wealth Management, and Card divisions. Positive trends in deposit growth were evident. The company’s Private Bank achieved a total of $3.6 billion in assets under management, progressing toward its ambitious goal of reaching $10 billion by the close of 2025. Its revenue from the Private Bank surged by 68%, totaling about $30 million in the second quarter, with projections showing a path toward breakeven on the bottom line later this year.
Chairman and CEO Bruce Van Saun emphasized the successful execution of the company’s strategic initiatives, highlighting significant milestones such as the Private Bank’s deposits reaching $4 billion and now has $3.6 billion in assets under management. He conveyed confidence in the company’s full-year guidance and medium-term objectives.
Overall CFG ranks 2nd on Jim Cramer’s exclusive list of YEV stocks. While we acknowledge the potential of CFG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CFG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.