Now let’s take a look at the most attractive diversified financial services stocks with respect to analysts’ ratings and valuations.
There are 285 analysts who cover the 15 diversified financial services stocks within the Financial Select Sector SPDR ETF (XLF). Of these, 162 have assigned “buy” ratings, 14 have given “sell” ratings, and 109 have given “hold” ratings. With more than 50% “buy” ratings, it seems that analysts are remaining bullish on these stocks despite turbulent financial markets.
Wall Street (SPY) analysts are most upbeat about Discover Financial Services (DFS). It received “buy” ratings from 24 analysts of the 30 who are covering the stock. Six analysts believed investors should continue holding this stock, and none of them believe the stock should be sold. In contrast, analysts are most negative about the performance of Franklin Resources (BEN). The stock has received the least number of “buy” ratings. Of the 19 analysts covering the stock, three believe the stock should be sold, 15 have rated it a “hold,” and one has assigned it a “buy” rating.
Diversified financial services companies are trading at an average price-to-book multiple of 1.92x.
Legg Mason is the cheapest stock with a price-to-book multiple of 0.72x. T. Rowe Price with a price-to-book of 3.7x is the most overvalued.
Relative strength index
On average, the diversified financial services stocks within XLF have a 14-day relative strength index (or RSI) of 53, suggesting that they’re still not oversold. T. Rowe Price and Charles Schwab (SCHW) with RSIs of 54 and 53, respectively, are closer to the overbought territory. Legg Mason (LM) with an RSI of 46 is oversold and hence may be considered undervalued.
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 getting overvalued and is a good candidate for a pullback. Likewise, if RSI approaches 30, it’is an indication that the asset may be getting oversold and therefore likely to become undervalued.
Read on to find out what moving averages tell us about the diversified financial services subsector.