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Analyzing Diversified Financial Services Stocks

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Analysts’ recommendations

303 analysts cover the 15 stocks in the diversified financial services sub-group. Of these, there are 180 “buy” ratings assigned, 16 “sell” ratings, and 107 “hold” ratings.

Wall Street (SPY) analysts are most upbeat about Discover Financial Services (DFS), as it has received “buy” ratings from 24 analysts among the 30 analysts that are covering the stock. While six analysts have assigned a “hold” rating to the stock, none of them are of the view that the stock should be sold. Discover Financial forms 0.29% of the Financial Select Sector SPDR ETF (XLF).

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In contrast, analysts are most negative about the performance of American Express, 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 least “buy” ratings from analysts. Of the 20 analysts covering the stock, four have rated it a “buy,” one a “sell,” and 15 analysts have rated it a “hold.”

Valuations

Diversified financial services companies are trading at an average trailing 12-month (or TTM) price-to-earnings multiple of 17.05x and a one-year forward price to earnings of 13.44x.

Navient (NAVI) is the most undervalued stock with a one-year forward PE of 5.89x, while CME Group with a one-year forward price to earnings of 21.91x is most overvalued. Navient is down ~43% year-to-date, while CME Group has rallied ~3% during the year.

Relative strength index

On an average, the diversified financial services sub-group has a 14-day relative strength index (or RSI) of 43. Intercontinental Exchange and Nasdaq (NDAQ), both with 14-day RSIs of 53, are closer to overbought territory.

Meanwhile, Navient (NAVI) and Affiliated Managers Group (AMG) with RSIs of 30 and 35, respectively, are oversold.

The 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 is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore is likely to become undervalued.

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