Be Careful with Financial Services Stocks Today
Banks are the most undervalued subsector.
The Morningstar US Financial Services Index has significantly underperformed the Morningstar US Market Index over the previous year, down 5.7% compared with an increase of 7.7%. However, the U.S. financial sector has had a strong recovery over the previous quarter, up 19% compared with the market's 23%. Even with the recent increase in stock prices, the median North American financial sector stock still trades at an 11% discount to its fair value estimate but below a 30% discount a quarter ago. With our assessment that many financial sector stocks are less undervalued than they were a quarter ago, investors should be much more discerning of which stocks they choose and cognizant of the risks they’re taking.
Financials made a comeback in the previous quarter. - source: Morningstar
Michael Wong does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.