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Quarter-End Insights

Banks Still Look Cheap

Some high-quality financial services firms are trading at decent discounts.

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The Morningstar US Financial Services Index has significantly underperformed the Morningstar US Market Index over the previous year, down 10.2% compared with up 10.3%. In the previous quarter, the U.S. financial sector has had stagnant performance, up 0.8% compared with the market, which is up 5.1%. After the recent increase in stock prices, the median North American financial sector stock trades at a 15% discount to its fair value estimate compared with about a 30% discount at the end of the first quarter of 2020. While we assess that many financial sector stocks are fairly valued, we see some large discounts in highly cyclical stocks and decent discounts in some high-quality companies.

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Michael Wong does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.