If you feel like valuations on Wall Street have gotten a little too foamy over the past few months, you’re not crazy. Up more than 100% from its March 2020 low, the S&P 500 (SNPINDEX: ^ GSPC) is now valued at over 29 times its 12-month profit and over 22 times its projected profit. These are rich valuations in all circumstances.
However, not all stocks push their plausible price limits. There are a few pockets of good price sense and even a few undervalued stocks. The financial sector is an area where some quality companies are still relatively cheap. Here are three of the best performing stocks in this sector that are downright undervalued.
1. State Street
You may know better State Street (NYSE: STT) than you realize. Although it provides a variety of services to investment managers, it is also the company behind the popular SPDR family of exchange-traded funds, such as the SPDR S&P 500 ETF Trust and SPDR gold stocks.
ETFs are great companies for one simple reason: they are resilient in all environments. State Street collects a small portion of investors’ total investments in its exchange-traded funds, regardless of the performance of those funds, just as it collects recurring fees to provide services to other asset managers. This does not make the company completely immune to economic headwinds. It should be noted, however, that its $ 9.5 billion 2020 pandemic fee income was actually 3.8% higher than its 2019 fee income. Net income grew at a rate even better by 8%. The company is also experiencing comparable growth in the first three quarters of this year, despite much turmoil.
Investors apparently recognize this constant force. The stock has surpassed the S&P 500 not only since the low last March, but also since the start of the year.
Even with the company’s reliable tax growth, the stock is only quoted 11.4 times next year’s projected earnings of $ 8.44 per share, while the prospective annual dividend per share of 2 , $ 28 returns just over 2.3% of the current share price. And, clearly, State Street can more than afford to keep paying its dividends.
2. Western Alliance Bancorp.
Many of the big banks have become household names. Western Alliance Bancorp. (NYSE: WAL) is not one of them. With a modest market cap of $ 12.4 billion and equally modest assets of $ 52 billion on its books, it just doesn’t turn many heads.
Don’t let its size deter you from considering it for your wallet, however. This small bank is growing. He now has 45% more assets on his books than at the end of 2020, and twice as much as he had on his books at the end of 2019.
The booming real estate market has a lot to do with this growth. Strong demand for mortgages allowed it to expand its loan portfolio to $ 34.8 billion at the end of the third quarter, up $ 8.8 billion year on year. Provisions for loan losses are also decreasing. These new borrowers also appear to open checking accounts. Total deposits had risen from $ 16.4 billion from their September 2020 level to $ 45.3 billion in September 2021. Obviously, Western Alliance is doing something right.
As with State Street, the market more or less rewards the growth of Western Alliance Bancorporation. Much like State Street, however, the magnitude of the reward somehow seems insufficient. The stock is still only trading at 12.1 times expected earnings for 2022, which is expected to be 12% higher than projected earnings for 2021.
3. Raymond James Financial
Finally, add Raymond James Financial (NYSE: RJF) to your list of undervalued stocks that you can buy today.
You know this business. In addition to supporting 8,400 financial advisers, Raymond James conducts analytical research on more than 1,000 publicly traded companies. He may not be a powerhouse within the retail investment industry, but he is a player, for sure.
It’s also a business a bit like State Street, and a bit like Western Alliance. In other words, recurring charges are an important feature of its business model. This is one of the main reasons why fiscal 2020 revenue increased 11% rather than decreasing, despite the impact of the pandemic. Its 2021 fiscal year (which ended in September) saw revenue growth of 27%. Profits also held up, even with economic headwinds that sometimes turned out to be costly. While this year’s net income is expected to drop from $ 7.05 per share in 2021 to $ 6.71 per share, this forecast may understate what lies ahead. Raymond James has beaten earnings estimates in each of its past six quarters, and analysts are calling for revenue growth of more than 9% this year, even though they expect earnings to contract. Either way, the analyst crowd is looking for 10% revenue growth next year, which should lead the company to a record annual profit of $ 7.86 per share.
The stock is currently only listed at 12.7 times the estimated earnings forecast, suggesting that investors lack the reliability of the company’s income stream.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.