Yahoo Finance GuruScreen movers - Feb 10th - Financials under the spotlight
The banks are in trouble again. US prosecutors are weighing up criminal charges against HSBC, amid news that the bank may have helped wealthy clients across the world evade millions of pounds in tax. Of course, this is not the first time banks have been under the spotlight. Last November, Channel 4's Economics Editor tweeted that he was "sick" of covering banking scandals (as this interesting video shows). This latest controversy will no doubt continue to unfold over the coming days and weeks, but in the meantime, Stockopedia takes a look at companies in the Financial sector that are qualifying for the GuruScreens.
London Stock Exchange
London Stock Exchange (LSE) has benefited from a string of IPOs that took place in 2014, to the advantage of the LSE's capital market units, where revenues grew by 13% in the six months ending November 2014. The LSE also released a bullish trading statement on 18 December, noting that the average daily volume of equity traded increased by 12% in the UK and 16% in Italy. Higher trading volumes are of course good news for stock exchanges, which charge trading fees as shares are bought and sold. The market has responded well to this news. Indeed, the LSE has (somewhat paradoxically) beaten the market by 28% over the last year and qualifies for Stockopedia's Value Momentum Screen - which tries to uncover stocks that are bargain priced but are beating the market.
Aviva
Aviva (AV.) also qualifies for the Value Momentum Screen, having beaten the market by nearly 13% this year, while retaining a PEG ratio of just 0.2. Earnings have grown by 22% over the last twelve months, but the company has a P/E ratio of 15.6. The FTSE average is 17.8. Why is Aviva relatively cheap? Demand for annuities in the UK has fallen dramatically since budgetary bills were introduced, removing certain requirements for annuity purchases by U.K. pensioners. Furthermore, in November Aviva entered negotiations to buyout Friends Life, the life insurance provider. Some investors could be concerned that this acquisition could hamper Aviva's growth, given the highly regulated nature of the UK life market. The other side of the coin is that Friends Life is a highly cash generative business and has an overall StockRank of 94. We've noted that higher StockRank stocks have tended to outperform, so perhaps Aviva is a good acquisition candidate after all.
UBS
UBS (UBSN) has risen by 12% since January 16 on the back of good news, including the announcement that the company would make its biggest dividend payout since the financial crisis. Indeed, UBS is set to treble its dividend for 2014 after a rise in quarterly profits. Perhaps investors have also been encouraged by news that UBS has committed to cut another CHF 1bn in costs by the end of 2015. Nevertheless, UBS currently trades with a Price to Cash Net of Burn ratio of 0.56 and therefore qualifies for Stockopedia's Trading below Cash Screen. UBS is indeed cheap, with a P/E ratio of just 11.6. Are investors concerned that a strong Swiss Frank could lead to weaker profits for UBS?
American Express
American Express Co (AXP) qualifies for the Philip Fisher Growth Screen - which aims to identify companies that are growing and are consistently profitable. American Express has indeed grown sales at compounded annual growth rate of 6.3% over the last five years. This growth has been supported by international expansion into areas where the middle classes are growing and consumer spending is rising. Banks are of course highly cyclical businesses. Perhaps it is hardly surprising that American Express has benefited from the ongoing economic recovery in the US. The firm's management have announced that cardmember spending increased by 9%.
Conclusions: So these companies have enjoyed a solid run. The LSE has benefited from new listings on the stock exchange. Aviva, with a low PEG ratio (0.2), has the characteristics of growth company at a reasonable price. American Express has also enjoyed solid growth in recently years, while UBS is paying out its biggest dividend since the recession. As always - these are not share tips and should not be read as investment advice. Please do your own research before investing.
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