Financial stocks have been fantastic bets throughout the recovery, but some look to have more room to run than others.
The Select Sector Financial Slct Str SPDR Fd (NYSEARCA:XLF) is up 23% year-to-date. Over the course of the past year, it has outperformed the broader market by a whopping 16 percentage points. Even though the financials have been one of the hottest sectors of the first half of 2013, there is still value to be found. In the coming months, financial equities will continue their uptrend and if investors want to capitalize on this opportunity, they should consider some of the following stocks.
Thomas Lee, JPMorgan Chase & Co. (NYSE:JPM)‘s chief equity strategist, recently hiked his year-end target on the S&P to 1,775 from 1,715 and noted that technology, financials and health care will be the top sector drivers to boost the market. At their current levels, stocks are trading at barely 14 times their forward earnings when they should be closer to 16-17 times.
JPMorgan Chase & Co. (NYSE:JPM) and the Federal Energy Regulatory Commission are nearing the completion of a $410 million agreement that would put to rest accusations that the bank manipulated energy markets in California and the Midwest. The same deal will see JPMorgan Chase & Co. (NYSE:JPM) forgo $200 million in unpaid claims from electricity buyers in California, and will clear up many questions that investors have about the company.
JPMorgan Chase & Co. (NYSE:JPM) also recently announced the possibility of pursuing strategic alternatives for its physical commodities business, including its remaining holdings of commodities assets and its physical trading operations. The decision was a result of intense political and regulatory pressure, but the company will remain fully committed to its traditional financial commodity business.
The company’s commodities business includes trading derivatives and its activities in precious metals. The trading in physical commodities generates less than 2% of JPMorgan Chase & Co. (NYSE:JPM)‘s total revenue, however.
The company vowed to resolve multiple government investigations and correct problems that regulators have found, and investors should compliment these initiatives to clean up the mess that the company has made.
JPMorgan’s stock is trading almost at 1 times its book value, making it a stock investors should certainly keep an eye on.
AFLAC Incorporated (NYSE:AFL) derives more than 75% of its total revenue from Japan, and volatility in the yen has contributed to some share-price underperformance this year. The supplemental insurance company’s stock is lagging the S&P 500 by about 5 percentage points in 2013, but it’s set to accelerate in the second half.
Margins are expanding and cash-flow is accelerating. The company also recently announced a share-buy back of $600 million in stock this year and anywhere from $600 million to $900 million in 2014. Reduced investment risk, rising margins and cash flows, and share buybacks should get AFLAC Incorporated (NYSE:AFL) back to double-digit earnings-per-share growth, and boost the stock. Yes, it’s lagged in 2013, but over the past 52 weeks it’s still up more than 40%. Keep on eye out for this little duck.
CitiGroup Inc (NYSE:C).
CitiGroup Inc (NYSE:C) recently delivered a profit and beat Wall Street’s expectations, and beat revenue expectations as well. Equities research analysts at the company also boosted their price target on shares to $58.00 in a research note issued to investors. You can expect better performance from CitiGroup Inc (NYSE:C) ahead. The company is an innovative firm with plenty of new products providing potential for incremental growth.
Despite uncertainty about the bank’s expenses and non-recurring charges, CitiGroup Inc (NYSE:C) continues to achieve stability from retail consumer banking, lower credit costs across its diverse business lines, and steady revenue growth from CitiGroup Inc (NYSE:C) Private Banking. Financial investors should keep this stock on their watch list, as it has potential to grow in the second half of the year.
Foolish conclusion
Sluggish economic growth and the Federal Reserve’s road map to winding down its bond-buying program around this time next year mean that the easy money for the financial sector may have already been made. The sector is outperforming the broader market by a wide margin so far in 2013, however, and has been absolutely clobbering it over the past 52 weeks. The aforementioned stocks showing promising signs of upward growth and are definitely stocks that investors need to keep an eye on in the second half of the year.
Chris Johnson has no position in any stocks mentioned. The Motley Fool recommends Aflac. The Motley Fool owns shares of Citigroup Inc and JPMorgan Chase & Co (NYSE:JPM).. Chris is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Financial Stocks to Consider originally appeared on Fool.com is written by Chris Johnson.
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