Is the Financial Crisis Over Yet for Financial Equities?

their current market value (mkval), the aqua colored more jagged line on the graph.  Aflac’s book value has increased steadily except for a minor pause during the Great Recession of 2008.  In contrast, their market value has been much more cyclical and erratic.  I believe this additionally reflects current undervaluation of Aflac’s shares.  This further supports my contention that Aflac is a great business that is currently on sale.

Blackrock Inc. (BLK)

Seth Klarman Tells His Investors: Central Banks Are Treating Investors Like “Foolish Children”

Volatility"Surreal doesn't even begin to describe this moment," Seth Klarman noted in his second-quarter letter to the Baupost Group investors.  Commenting on the market developments over the past six months, the value investor stated that events, which would typically occur over an extended time frame, had been compressed into just a few months. He noted Read More


BlackRock, Inc. (NYSE:BLK) is the world’s largest asset manager serving individuals and institutions from all over the world.  Since calendar year 2000 Blackrock has achieved a superior record of earnings growth averaging 21.6% per annum.  Since earnings drive market price in the long run, their stock price has followed suit.

A $10,000 investment on December 31, 1999 would have grown to $164,049.97 by July 31, 2013.  This represents a compound annual rate of return of 22.9% in contrast to only a 1% compounded annual rate of return for the S&P 500 over the same time.  Additionally, Blackrock initiated a dividend in 2003 which has grown at a compounded annual rate of 40.1% per annum.  Consequently, that same $10,000 investment on December 31, 1999 which generated dividends of $18,653.16, is more than 10 times the cumulative dividends of $1,760.08 for an equal investment in the S&P 500.  This brings Blackrock’s total return to shareholders since 1999 to 23.8% per annum.

I offer BlackRock, Inc. (NYSE:BLK) as an exciting long-term opportunity in the Financial sector.  However, I want to point out that I believe the company is fully valued at current levels.  To be clear, I do not see it as being extremely overvalued, but I consider it fully valued as the price sits atop the valuation corridor depicted by the 5 orange lines on the Estimated Earnings and Return Calculator.  However, the current estimates for future earnings growth might be biased based on what the company has accomplished since 2008 as it went through the Great Recession.  As an aside, I calculated Blackrock’s earnings growth since 2008 and it has averaged 12.1% per annum, which closely correlates to the current estimates of 12.7%.

The important point I’m trying to convey here, is that valuation is rarely an exercise in precision.  Instead, the best that an investor can hope to accomplish is to make decisions based on a reasonable range of probabilities and possibilities.  In the case of Blackrock Inc, their long-term historical growth rate of 21.6% per annum would indicate that the company is currently undervalued on that basis.

Therefore, if I utilized the override feature of the Estimated Earnings and Return Calculator and input the longer-term 21.6% earnings growth rate that Blackrock Inc has achieved, then the shares would appear undervalued on that basis.  Although I believe the truth is somewhere in between current estimates and their long-term average, I would still suggest patiently waiting for a pullback before initiating a position.  But with that said, I think this is a stock that should be on every dividend growth investor’s radar screen.

Bank of Nova Scotia (BNS.)

Since I included Canadian stock exchange companies in my screen, I thought it would be appropriate to feature a Canadian bank.  As I previously stated, Canadian financial institutions were not participating in the greedy behavior of their US counterparts which created the financial crisis in the United States.  Consequently, for those dividend growth investors desirous of adding a financial institution, there are many Canadian banks that look very attractive on a valuation and current yield basis.  The Bank of Nova Scotia (TSE:BNS) is but one example, there are several others that made the conservative list above.

To avoid a lot of excess rhetoric, I will simply let the following F.A.S.T. Graphs™ speak for themselves.  As the graphs depict, the Bank of Nova Scotia has an excellent long-term track record, a very attractive current dividend yield and appears to be very attractively valued at current levels.  Of course, and as always, further due diligence is suggested.

Aggressive Financials

The following portfolio review lists several more aggressive financial companies that I felt worthy of further due diligence.  Once again, I am not specifically recommending any of these selections as current buys.  Instead, I offer these as potential candidates that appear worthy of a more comprehensive due diligence effort.

Credit Corp. Limited (BAP)

My first featured aggressive financial candidate is Credicorp Ltd. (NYSE:BAP), a Bermuda-based financial services holding company, and the largest financial holding company in Peru.  Although the company is headquartered in Bermuda and operates in Peru, its long-term track record is exceptional.  Once again, I will let the F.A.S.T. Graphs™ speak for themselves, other than to say in addition to a great track record, this ADR is expected to offer above-average growth and appears to be very attractively valued at today’s levels.

ICICI Bank Limited-ADR (IBN)

My second featured aggressive financial is ICICI Bank Limited (NYSE:IBN), an ADR (American Depository Receipt) headquartered in India.  This company is the largest private sector bank in India.  Current low valuation is what most attracted me to this aggressive selection.  However, I believe that prospective investors should carefully consider the amount of price volatility that has historically occurred with their share price.  Nevertheless, for those dividend growth investors with a stomach for risk, this company may be worth taking a closer look at.

REITs

Although I do not consider myself an expert in REITs, a review of the Financial sector would not be complete without at least including them in my screen analysis.  After going through most of the REITs that had