Top investors see these top banking sector companies as bargains at their current levels.
The financial area of the market may seem a little sleepier than high-flying sectors like technology, but there are outstanding companies and excellent deals below the surface. Ask Warren Buffett.
Through the years, Buffett has done very well for Berkshire Hathaway (BRK.A 0.96%) (BRK.B 0.86%) shareholders by making financial equities a central part of the Berkshire Hathaway portfolio. How he can create such high returns is based partly on his willingness to wait patiently for the stock of businesses he believes in to show its value.
Do you intend to try to duplicate Buffett’s accomplishments?
We will now look at four companies in the banking sector that have attractively low prices.
Ally Financial (ALLY)
Ally Financial (ALLY 3.84%) is a wonderful company whose stock is selling at a value that is too low to ignore. The Detroit-based firm has become the most prominent US internet bank serving customers directly. Regarding vehicle financing, the 103-year-old corporation still has a strong presence. It was the financial division of General Motors until it became an independent company. It provides conventional checking and savings account services in addition to mortgage loans, an online brokerage, and other products and options.
With a price-to-book ratio of 0.9, Ally stock trades at a discount to its intrinsic value. A company’s book value is its total assets minus its total liabilities. Using this book value and the current market value of the corporation, one may determine the price-to-book ratio, a standard method for assessing the value of bank stocks. If the stock price is less than the value of the company’s assets, then the price-to-book ratio is less than 1. In theory, this signifies that the value of the company’s assets exceeds its current market price. Investors have a cushion when purchasing shares of a company like Ally Financial, with a price-to-book ratio of less than 1.
Ally is very affordable, with a price-to-earnings ratio of less than five, and it has a dividend yielding 3.7%, which is above average. Moreover, ally has been a prolific buyer of its shares, having announced at the start of 2022 a share buyback program authorizing the acquisition of up to $2 billion in shares by the end of that year. Currently, this $2 billion represents a stunning 20% of the firm’s market value. With such a low price tag and such a strong focus on shareholder returns that Buffett decided to buy shares in the company during the first quarter of 2022.
If you thought Ally Financial’s price was attractive since it was below book value, you’d adore the current valuation of Citigroup (C 1.97%). In addition, the stock trades at a price-to-book ratio of less than 0.6, making it even more inexpensive.
Trading at a price-to-earnings multiple of only six, Citigroup seems to be a good investment. New York’s $100 billion bank provides many of the same services to individual customers that Ally does. It also has an institutional division that deals with investment banking and selling and purchasing fixed and equity investments. Citigroup, in contrast to Ally, maintains extensive global operations.
You probably have predicted that this is another Buffett stock and that Buffett added it to Berkshire’s portfolio during Q1 of 2022. Buffett did not spend any time increasing his stake in Citigroup, which is currently Berkshire’s 15th most significant investment. In addition, investors may benefit from Citigroup’s over 4% dividend yield on share purchases.
Goldman Sachs (GS 1.8%) shares aren’t selling at a discount to their book value, but they’re hardly overpriced, either, with a price-to-book ratio of just 1.1. Moreover, the bank, which has been operating for 153 years, has a low price-to-earnings ratio of only 7.5, making its shares very inexpensive. All of this looks shockingly low for a significant investment firm of Goldman’s caliber and scale and much below its usual historical value. Moreover, the lackluster 2022 market hasn’t been conducive to initial public offerings (IPOs) or merger and acquisition activity, which has led to a decline in share prices.
These markets will undoubtedly begin to heat up again, and when they do, Goldman will be in an excellent position to capitalize. Meanwhile, the corporation has diversified away from its reliance on investment banking by launching a consumer banking division named Marcus, which it expects to be profitable and add to its bottom line. Its stock now yields 3% after a recent dividend increase of 25%, to $2.50 per share. Although Goldman is not now one of Buffett’s stock picks, I wouldn’t be shocked to see it on his radar if he saw the company’s excellent pricing and market leadership.
Block, Inc. (ticker: SQ)
Block is a world leader in digital payments, with a market valuation of $65 billion. Block, formerly known as Square, has a diverse clientele that includes everyone from solopreneurs to multinational conglomerates.
Block is also committed to international growth, penetrating international markets such as the United Kingdom, Australia, Canada, and France. Block is well positioned to maintain its position as a leader in the expanding digital transaction ecosystem as the use of contactless payments becomes more common in the COVID-19 age.
The bitcoin market is also a major risk factor for Block. Spiral, the company’s subsidiary, develops and finances Bitcoin initiatives. According to David Miller, portfolio manager of the newly formed Strategy Shares Halt Climate Change ETF, “their recent business name change signals a shift in emphasis from a pure payment firm to a larger, more diversified fintech innovation trying to extend their crypto footprint” (NZRO).
Robinhood Markets Inc. (HOOD)
The revolutionary brokerage Robinhood has more than 22 million funded accounts and more than 18 million monthly active customers, making it one of the top fintech stocks. Despite criticism of the brokerage’s payment-for-order-flow model, Robinhood has a lot going for it.
For example, the company plans to offer retirement accounts, more ways to invest in cryptocurrencies, real-time assistance from customer service representatives, the ability to set up automatic investments, and the ability to transfer funds from other brokerages. All of these steps might increase the number of people using Robinhood and get more ordinary people interested in the stock market.