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Analyzing Diversified Financial Services Stocks

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Wall Street recommendations

Three hundred and four analysts cover the 13 stocks in the diversified financial services sub-group. Of these, there are 173 “buy” ratings assigned, 17 “sell” ratings, and 114 “hold” ratings.

Wall Street (SPY) analysts are most upbeat about Affiliated Managers Group (AMG). It has received “buy” ratings from ten analysts among the 12 analysts covering the stock. Meanwhile, one analyst has rated the stock a “sell” and one analyst believes investors should continue holding this stock.

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In contrast, analysts are most negative about the performance of American Express (AXP), as the stock has received the most “sell” ratings. Out of the 35 analysts covering the stock, five believe the stock should be sold. However, Franklin Resources has received the fewest “buy” ratings from analysts. Of the 20 analysts covering the stock, three have rated it a “buy,” one has rated it a “sell,” and 16 have rated it a “hold.”

Valuations

Diversified financial services companies are trading at an average trailing-12-month price-to-earnings multiple of 16.84x and a one-year forward price-to-earnings multiple of 14.42x.

Navient is the most undervalued stock, with a one-year-forward PE of 7.77x, while Schwab Group has a one-year forward price-to-earnings of 22.93x and is the most overvalued.

Navient is down ~25% year-to-date while Schwab Group has rallied ~15% during the year.

Relative strength index

On average, the diversified financial services sub-group has a 14-day relative strength index, or RSI, of 41. Schwab Group and NASDAQ (NDAQ), with RSIs of 63 and 60, respectively, are closer to overbought territory.

Meanwhile, Legg Mason, Franklin Resources (BEN), and Navient (NAVI) have RSIs of 26, 27, and 29, respectively. They’re oversold.

A relative strength index is a technical momentum indicator used to determine overbought or oversold conditions. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be overvalued and that it’s a good candidate for a pullback. Likewise, if the RSI approaches 30, it indicates that the asset may be oversold and is therefore likely to become undervalued.

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