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Analyst Recommendations for Diversified Financial Services Stocks

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Jan. 6 2016, Updated 8:08 a.m. ET

Analysts’ recommendations

Out of 290 analysts covering the 15 stocks in the diversified financial services subgroup, 167 issued “buy” ratings, 15 issued “sell” ratings, and 108 issued “hold” ratings. Additionally, Wall Street (SPY) analysts appear upbeat about Discover Financial Services (DFS) as it has received “buy” ratings from 25 analysts of the 31 analysts that are covering the stock.

Meanwhile, six analysts are of the view that investors should continue to hold the stock, and no analysts believe that the stock should be sold. In contrast, analysts are more negative about the performance of American Express, as the stock has received the largest number of “sell” ratings. Out of the 35 analysts covering the stock, six believe the stock should be sold. Alternatively, Franklin Resources (BEN) has received the least number of “buy” ratings from analysts. Of the 20 analysts covering the stock, two gave it a “buy” rating, two gave it a “sell” rating, and 15 analysts gave it a “hold” rating.

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Valuations

Diversified financial services companies are trading an average trailing-12-month price-to-book multiple of 2.22x. Legg Mason (LM) seems to be the most undervalued stock with a price-to-book multiple of 0.95x while T. Rowe Price Group, with a price to book of 3.85x, appears to be the most overvalued.

Legg Mason fell ~27% in 2015 while T. Rowe Price Group fell ~15% during the year.

Relative Strength Index

On average, the diversified financial services subgroup has a 14-day RSI (Relative Strength Index) of 47. Invesco and Intercontinental Exchange, with RSI values of 57 and 54, respectively, are close to overbought territory. Meanwhile, Legg Mason (LM), Navient (NAVI), and Ameriprise Financial had RSI values of 41, 42, and 43, respectively, and so are closer to being oversold.

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

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