4 Finance Stocks to Bet on This Earnings
Despite persistent pressure on top line, banks remain in good shape
in terms of earnings so far on the back of aggressive cost
containment measures and lower provision for loan losses. However,
the sector participants seem to have lost strength in
fourth-quarter 2013 with the alternate measures being less
effective to yield desired results so far.
Some of the segments like equity business and commercial lending
have no doubt remained strong, thanks to the economic stability
that instilled investors' confidence. However, the rate of
growth was not enough to offset the pressure on earnings this
As the unemployment rate continues to remain over 6.5%, we believe
that the Federal Reserve will continue with its stimulus for some
more time, which will keep the interest rate low and consequently
hurt interest income. Moreover, higher capital requirements and
strict vigilance on parallel sources of income for banks will
likely keep margins under pressure.
So far, 24.1% of the sector participants have reported
fourth-quarter results. Total earnings for the companies have shown
an increase of 14.2% over the prior-year quarter. But this
impressive growth has been primarily driven by
Bank of America Corp.
) stupendous contribution to the sector earnings. Moreover,
revenues dropped 1.0%.
Though beat ratios (percentage of companies coming out with
positive surprises) for both earnings and revenues were decent at
63.2% and 36.8%, respectively, it was largely due to conservative
For a detailed look at the earnings outlook for this sector and
others, please read our
The scenario might appear dismal, but you can turn the odds in your
favor. As a reflection of the weakness in the sector, finance
stocks look relatively cheaper now. So selecting a few finance
stocks with a huge short-term growth potential should yield a solid
return. We have picked a handful of stocks that are slated to
report earnings for the quarter ended Dec 31 in the coming days and
will likely beat estimates. An earnings beat will raise investors'
confidence in these stocks, leading to rapid price appreciation.
How to zero
in on the Right Stocks
Choosing the most profit-yielding stocks in the finance sector
could be quite tricky unless one narrows down the list. One way of
doing so is by selecting stocks that have the combination of a
favorable Zacks Rank - Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3
(Hold) - and a positive Zacks
Earnings ESP is our proprietary methodology for identifying stocks
that have the best chance to surprise with their upcoming earnings
announcement. It shows the percentage difference between the Most
Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, chances
of a positive earnings surprise are as high as 70%.
Here are 4 finance stocks that have the right combination of
elements to deliver an earnings beat when they release their
earnings in the next couple of days:
SVB Financial Group
) is a Zacks Rank #2 stock with an earnings ESP of +0.90%. The
Zacks Consensus Estimate for fourth-quarter 2013 is $1.11 per
Headquartered in Santa Clara, California, SVB Financial Group is a
diversified financial services company. It is also a bank holding
and financial holding company. The company through its primary
subsidiary, Silicon Valley Bank, and various other subsidiaries as
well as divisions provides a wide range of banking and financial
products and services.
The company has registered an average positive earnings surprise of
10.46% over the trailing 12 months.
SVB Financial is scheduled to announce fourth-quarter and full-year
2013 results after the market closes on Jan 23.
Cathay General Bancorp
) carries a Zacks Rank #2 and has an earnings ESP of +2.50%. The
Zacks Consensus Estimate for the upcoming quarter is 40 cents per
Based in Los Angeles, California, Cathay General Bancorp is the
one-bank holding company for Cathay Bank. Cathay Bank offers
various commercial banking products and services for individuals,
professionals, and small to medium-sized businesses.
The company is scheduled to report fourth-quarter and full-year
2013 results after the market closes on Jan 23.
OceanFirst Financial Corp.
) has a Zacks Rank #3 and an earnings ESP of +42.86%. The Zacks
Consensus Estimate for the fourth quarter is 21 cents per share.
Toms River, New Jersey-based OceanFirst Financial operates as a
holding company for OceanFirst Bank. OceanFirst Bank offers
community banking services to retail, government, and business
OceanFirst Financial is expected to announce fourth-quarter and
full-year 2013 results after the market closes on Jan 23.
Prosperity Bancshares Inc.
) has a Zacks Rank #3 and an earnings ESP of +2.20%. The Zacks
Consensus Estimate for the upcoming quarter is 91 cents per share.
This Houston, Texas-based company operates as the holding company
for Prosperity Bank. Prosperity Bank offers a range of financial
products and services to small and medium-sized businesses and
Prosperity Bancshares is expected to announce fourth-quarter and
full-year 2013 results before the opening bell on Jan 24.
We anticipate a slightly better scenario in 2014. Though the long
term interest rates may not increase considerably in the first half
of the year, we expect an improvement in the later half with the
Fed's confidence on the economic growth. Moreover, as the economic
security revives, banks are expected to draw down their reserves
that were hoarded for meeting legal expenses. Therefore, we expect
increased as well as efficient capital deployment activities in the
form of share repurchases, mergers and acquisitions as well as
dividend payouts in the finance sector. So finance sector certainly
looks attractive from a long-term investment perspective.
At present, we observe that the growth process is sluggish and low
interest rates have significantly compressed profitability.
Nevertheless, we have to be patient as we are headed towards a more
stable economy with a strong and safe financial backdrop.
BANK OF AMER CP (BAC): Free Stock Analysis
CATHAY GENL BCP (CATY): Free Stock Analysis
OCEANFIRST FINL (OCFC): Free Stock Analysis
PROSPERITY BCSH (PB): Free Stock Analysis
SVB FINL GP (SIVB): Free Stock Analysis Report
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