Despite the credit crunch being history, attitudes towards banks and other financial stocks remain rather negative. Certainly, they played a part in the global financial crisis, and with regulatory fines still being mooted, many finance stocks are still paying for their mistakes. However, to generalise a sector seems unfair and, in actual fact, some of the most appealing buying opportunities in the entire index are to be found in the finance sector.
Take, for example, wealth management firm, Rathbone (LSE: RAT). It has performed exceptionally well in recent years, with its bottom line growing at an annualised rate of 14.4% during the last five years. That’s around twice the growth rate of the wider index and, as a result, Rathbone’s shares have increased by 160% in the last five years.
Despite this, they still trade on a hugely appealing valuation. For example, they have a price to earnings growth (PEG) ratio of just 1.3 and this indicates that there is plenty more room for capital growth over the medium to long term. Of course, Rathbone’s business model is highly correlated to the performance of the wider index and a higher FTSE 100 means increased fees (and demand) from investors. But, with the long term outlook for the stock market being upbeat, Rathbone still looks like a great place to invest.
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Similarly, HSBC (LSE: HSBA) (NYSE: HSBC.US) continues to come under fire from investors despite having an excellent balance sheet and superb consistency with regard to its bottom line. Unlike many of its peers, HSBC remained profitable throughout the credit crunch and, while its cost base is overly high, it appears to have the right strategy to tackle this problem in the coming years. As such, earnings growth of 21% is expected this year and, despite such a bright outlook, HSBC trades on a price to earnings (P/E) ratio of just 10.6.
Certainly, the Asian economy (to which HSBC has vast exposure) is not performing as well as the bank’s investors would hope. And, with the Chinese stock market enduring a volatile period, it is likely that doubts surrounding Chinese growth prospects will begin to surface. However, no period of rapid development in any country’s history was ever smooth and, while the Chinese growth rate may fall in future years, it remains the most appealing place to conduct banking activities for the long term.
Meanwhile, interdealer broker, Tullett Prebon (LSE: TLPR), continues to endure a rough patch. Its bottom line has fallen by 35% in the last four years as the banking crisis spilled over into its operations. Despite this, its outlook is relatively positive, with earnings growth of 6% being pencilled in for each of the next two years. And, with Tullett Prebon trading on a P/E ratio of just 10.8, it seems to offer good value for money at the present time.
Furthermore, Tullett Prebon remains a top notch income play. It currently yields an impressive 4.7% and yet only pays out around half of its profit as a dividend. So, looking ahead, its dividends should be relatively sustainable and also offer scope to rise in 2016 and beyond.
