The financial services sector has recovered splendidly from the beat down it suffered during the 2008 financial crisis. It has been one of the best performing sectors in the last year, and sentiment remains high for the industry in 2013.
This article compares the attributes and recent performance of four of the biggest names in the industry: Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), and Goldman Sachs Group, Inc. (NYSE:GS).
Market valuation: Wells Fargo & Co (NYSE:WFC) trades at a price/earnings ratio of 10.6 and a price/book ratio of 1.36. JPMorgan Chase & Co. (NYSE:JPM) is valued at a P/E of 8.6 and a price-to-book of 0.94. Citigroup’s P/E ratio is 16.9, while its price-to-book ratio is 0.75. Goldman Sachs Group, Inc. (NYSE:GS) has a P/E of 9.8 and a price/book of 0.95.
Recent stock performance: Wells Fargo & Co (NYSE:WFC) has traded between $29.80 and $38.20 in the last year, with a current price of $37.40. Shares hit $40 in September 2008 before plummeting to under $10 due to the global financial crisis. It has traded between $25 and $35 since mid-2009.
Other than a plateau during the fall of 2012, JPMorgan Chase & Co. (NYSE:JPM)’s stock has been on a steady rise since hitting a 52-week low of $30.83 in June 2012. It is currently valued at $48 a share. It has regained the value it had prior to the financial crisis, but it has been a volatile stock over the past two years, fluctuating between $30 and $50.
Citigroup Inc (NYSE:C) shares have nearly doubled in value since establishing a 52-week low of $24.61 in June 2012. That’s little solace for shareholders who saw the stock crash from $250 to $10 during the financial crisis. Though not as steep, the stock also suffered a 50% decline from January to October 2011.
Goldman Sachs Group, Inc. (NYSE:GS) has rewarded investors in the last year, as shares have risen 30% since May 2012 to about $144. Shares are still well under the $200 they were fetching before the financial crisis.
Recent earnings report: JPMorgan Chase & Co. (NYSE:JPM) has produced increasing net income each of the last four years, from $11.73 billion in 2009 to $21.28 billion last year. Though not as robust, Wells Fargo & Co (NYSE:WFC) has also increased its net income year over year for a few years, from $12.28 billion in 2009 to almost $19 billion last year.
Goldman Sachs Group, Inc. (NYSE:GS) encountered two consecutive years of falling net income, from $13.3 billion in 2009 to $4.4 billion in 2011, but produced an increase to $7.5 billion in 2012. Citigroup Inc (NYSE:C) suffered a $1.6 billion loss in 2009, then rebounded with 2010 net income of $10.6 billion and $11 billion in 2011. Last year, net income fell to $7.5 billion.
Analyst opinion: Wells Fargo & Co (NYSE:WFC)’s analysts have given the company 7 strong buy ratings, 11 buys, 16 holds and 1 sell. Citigroup Inc (NYSE:C)’s analysts have given it 9 strong buys, 17 buys, 3 holds and 1 each of underperform and sell. JPMorgan Chase & Co. (NYSE:JPM) has 8 strong buy ratings, 20 buys, 4 holds and an underperform. Goldman Sachs analysts are more neutral than the other companies, with 4 strong buys, 4 buys, 19 holds and 2 underperforms.
Management effectiveness: Wells Fargo & Co (NYSE:WFC)’s 12-month return on equity was 13.4%, return on assets was 1.4%, return on investments was 6.8% and its most recent annual net profit margin was 27.1%. Its average returns over the last five years were 0.3% on assets and 1.5% on investments with an average NPM of 5.2%.
JPMorgan Chase & Co. (NYSE:JPM) garnered a return on its equity of 10.9%, on its assets of 0.9% and its investments of 4.7%. Its net profit margin last year 26%. Over the last five years, it has averaged a net profit margin of 9.8%, a return on assets of 0.5% and a return on investments of 2.3%.
Citigroup Inc (NYSE:C)’s return on equity in its last full year was 4.2%, while its return on assets was 0.4% and its return on investments was 1.80%. It earned a net profit margin of 9.1%. Over the last five years, Citigroup has averaged a net profit margin of 0.1%. with 0 averages on its ROA and ROI.
Goldman Sachs Group, Inc. (NYSE:GS) got a 10.8% return on its equity in the last year, while earning an ROA of 0.8%, an ROI of 3.1% and an NPM of 18.3%. Over the last five years, it has averaged an annual NPM of 9.8%, an ROA of 0.5% and an ROI of 1.8%.
Dividends and yield: Goldman Sachs Group, Inc. (NYSE:GS) has a low payout ratio of 13%. Its current annual dividend is $2 with a yield of 1.4%. Its annual yield over the last five years has been 1.3%.
Citigroup Inc (NYSE:C) is only paying out 1% of earnings, with an annual dividend of $0.04, yielding 0.1%. Citigroup’s average yield over the last five years has been 2.4%.
JPMorgan is paying an annual dividend of $1.52 that yields 3.2%, with the company’s payout ratio a low 21%. JPMorgan’s average dividend over five years has yielded 2.3%.
Wells Fargo’s dividend stats are similar to JPMorgan’s. It has a current payout ratio of 26, an annual dividend of $1.20 that yields 3.2%. Its average yield over the last five years has been 2.1%.
Below is one of the most popular exchange traded funds specializing in the financial services sector.
iShares Dow Jones U.S. Financial Services Index Fund
This ETF, created in June 2000, corresponds to the Dow Jones U.S. Financial Services Index. The index includes banks, investment brokers and other investment professional firms. Wells Fargo & Co (NYSE:WFC) (10.95%), JPMorgan Chase & Co. (NYSE:JPM) (10.94%) and Citigroup (8.29%) are the fund’s three largest holdings. Goldman Sachs accounts for the seventh largest holding at 3.67%. The fund has a current one-year return of 22.2%, a three-year annualized return of 4.41%, a five-year annualized return of -5.8% and a 10-year annualized return of -0.59%.
Many people believe JPMorgan is the frontrunner of this group, but all 4 are viable investments, given their long track record and past success. The financial institutions are difficult to differentiate, and given the issues with this industry in the past 5-10 years, many people are avoiding them altogether. However, this is another way to diversify your portfolio, so if nothing else, it is worth considering the ETF to gain exposure to the industry. Take a look at your portfolio, and see what works before for you.
The article The Best Financial Companies: Head to Head originally appeared on Fool.com and is written by Daniel Murray.
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