News & Analysis

Q3 2021 Momentum-driven financial stocks to consider

16 Aug 2021 | by: Kirsteen Mackay

Q3 2021 Momentum-driven financial stocks to consider

Financial stocks include a wide array of businesses operating in the financial sector. Banks, lenders, insurance, payment networks, financial services, mortgage REITs, blockchain and cryptocurrency offerings, fintech stocks, and even SPACs come under this umbrella.

Finance is at the heart of the stock market which gives further scope for an investment opportunity. There are also several financial-themed exchange-traded funds (ETFs) for those wary of investing in individual finance stocks.

What is the financial sector?

The global economy is made up of several industry sectors. One of these is the financial sector, which refers to the businesses and institutions providing financial services in both business-to-business (B2B) and business-to-consumer (B2C) models.

When the economy is thriving, financial stocks tend to thrive in sync, but a declining financial sector can be a sign of a struggling economy. Mortgages and loans are a major contributor to financial sector revenues, leading it to flourish in a low-interest-rate environment.

Here is a selection of stocks in the financial sector enjoying price momentum in recent months:

Momentum-driven financial stocks by EPS for Q3 2021

EPS stands for earnings per share. This financial ratio relates the earnings generated by the business, to the number of shares in issue.

The EPS refers to earnings generated during a specific time frame. For example, TTM stands for Trailing Twelve Months, so EPS and TTM often come together to describe how the earnings have changed during the past 12 consecutive months.

According to our calculations, some momentum-driven financial stocks, displaying significant EPS growth, include the following:

Ally Financial Inc

Ally Financial Inc (NYSE: ALLY) is a bank holding company. It provides various digital financial products and services to consumer, commercial, and corporate customers in the US and Canada

ALLY has a $19.3bn market cap, total debt is $17.4bn, while cash and equivalents amount to $13.6bn. Meanwhile, the short interest on this stock is 3%.

Ally Financial Inc has a forward P/E of 7.6. It also offers shareholders a 1.8% dividend yield. ALLY displays EPS growth of 124% TTM and its 2021 consensus average EPS forecast is 8.14

Analyst consensus on this stock is a 12-month average share price target of $65.25. That gives a potential 21.6% upside. ALLY stock currently appears in 141 exchange-traded funds (ETFs).

Onemain Holdings Inc

Onemain Holdings Inc (NYSE: OMF) is a financial services holding company operating in consumer finance and insurance. It has a $7.9bn market cap, total debt is $17.6bn, while cash and equivalents are $1.7bn. Meanwhile, the short interest on this stock is 2.4%.

Onemain Holdings Inc has a forward P/E of 6.7. It also offers shareholders a 16.4% dividend yield.

OMF displays EPS growth of 125.3% TTM and its 2021 consensus average EPS forecast is $10.66.

Analyst consensus on this stock is a 12-month average share price target of $72. That gives a potential 20.7% upside. OMF stock appears in 104 exchange-traded funds (ETFs).

Capital One Financial

Capital One Financial (NYSE: COF) is a financial services holding company offering Credit Card, Consumer Banking, and Commercial Banking.

COF has a $76bn market cap, total debt is $37.9bn, while cash and equivalents are $37.6bn. Meanwhile, the short interest on this stock is 1%.

Capital One Financial has a forward P/E of 9. It also offers shareholders a 1.4% dividend yield. COF displays EPS growth of 135.4% TTM and its 2021 consensus average EPS forecast is $24.40.

Analyst consensus on this stock is a 12-month average share price target of $180.02. That gives a potential 5% upside. COF stock appears in 196 exchange-traded funds (ETFs).

Wells Fargo & Co

Wells Fargo & Co (NYSE: WFC) is a leading financial services company serving 1 in 3 US households. It has $1.3T in assets and provides a diversified range of banking, investment and mortgage products, along with consumer and commercial finance.

WFC has a $203bn market cap, total debt is $244bn, while cash and equivalents are $476bn. Meanwhile, the short interest on this stock is 1%.

Wells Fargo & Co has a forward P/E of 14.5. It also offers shareholders a 0.8% dividend yield. WFC displays EPS growth of 639.7% TTM and its 2021 consensus average EPS forecast is $4.34.

Analyst consensus on this stock is a 12-month average share price target of $48.94. That offers a potential 1% downside on the current share price. WFC stock appears in 180 exchange-traded funds (ETFs).

CIT Group

CIT Group (NYSE: CIT) is a bank holding company. It has a market cap of $5.1bn, total debt is $6.1bn while cash and equivalents are $5.6bn. Meanwhile, the short interest on this stock is 3.8%.

CIT has a forward P/E of 12. It also offers shareholders a 2.6% dividend yield. The CIT Group share price is up 234% from its 52-week low and down 6% from its 52-week high. It has risen 46% year-to-date and 154% in a year.

CIT may have a positive short-term outlook but the mid-to-long term is less clear. Its recent Q2 results reported net income to common shareholders of $215 million or $2.14 per diluted common share.

CIT Group is merging with First Citizens BancShares (NASDAQ: FCNCA) to increase its customer offering. It received approval from the FDIC in July and expects to complete in Q3.

During Q2, CIT raised its tangible book value per common share to $54.39. It has also been successfully reducing funding costs and growing average deposits.

CIT Group displays EPS growth of 127% TTM and its future EPS is expected to continue to show strong growth. Its most significant shareholders are BlackRock (NYSE: BLK) at 10.8% and Vanguard at 9.6%.

Analyst consensus on this stock is a 12-month average share price target of $50. That offers a potential 6.3% downside on the current share price. CIT stock appears in 75 exchange-traded funds (ETFs).

Cincinnati Financial Corporation

Cincinnati Financial Corporation (NASDAQ: CINF) is an insurance holding company. Its five divisions include commercial, personal, excess and surplus, life insurance, and investments.

CINF has an impressive track record of increasing its dividend for 60 years. Common stocks make up 42% of its portfolio and it has 32 years of favorable reserve development.

The pandemic caused growth to slow for several quarters resulting in $85m worth of full-year loss and expenses. CINF has a $19bn market cap and a forward P/E of 25. Its dividend yield is 2.1%.

Analyst consensus estimates have a 12-month average share price target of $126.40. That offers a potential 8.6% upside. CINF appears in 187 ETFs.

Cincinnati Financial Corporation displays EPS growth of 2,763% TTM. But its future EPS is expected to fall.

World Acceptance Corporation

World Acceptance Corporation (NASDAQ: WRLD) specializes in consumer finance, particularly small and short-term loans. The financial company has enjoyed momentum over the past 12 months with EPS growth of 301% TTM.

Its share price is up 73.7% year-to-date and 113% in a year. World Acceptance has a $1.2bn market cap. Its current P/E ratio is 13 and its forward P/E is 17.

WRLD displays EPS growth of 301% TTM. But its future EPS is expected to fall. Short interest in this stock is over 10%.

Analyst consensus on this stock is a 12-month average share price target of $96.50, which is a 47% drop from today’s price. This indicates a bearish outlook, signaling WRLD may be a momentum trap.

Best Q3 2021 momentum-driven financial stocks by sales growth

Sales growth is an important financial metric for any business to track. If sales are increasing, the company should be thriving, whereas if sales are declining, the business may be in trouble.

To calculate the sales growth rate year over year, simply divide the current sales by the prior year’s sales. Sales growth = this year’s sales / last year’s sales

Here are a few financial stocks gaining momentum in sales growth:

Cowen Inc

Cowen Inc (NASDAQ: COWN) is a diversified financial services company operating through two segments: alternative investment and broker-dealer.

It released its Q2 earnings reporting GAAP net income of $43.6m, $1.29 per diluted share. The company also enjoyed strong Investment Banking, Brokerage, and Management fee revenues.

It repurchased $49.9m in shares and declared a quarterly cash dividend of $0.10 per share.

Cowen displays sales growth of 82.5% TTM. Analyst consensus on this stock is a 12-month average share price target of $57.80. That gives a potential 44.44% upside.

Meanwhile, its 2021 consensus average EPS forecast is $8.96. Its forward P/E is 6.9 and it offers a 1% dividend yield.

Cowen has a $1.1bn market cap and its debt is $3.8bn, while cash and equivalents are $6.6bn. The short interest in Cowen stock is 13%. COWN stock appears in 65 exchange-traded funds (ETFs).

JMP Group LLC

JMP Group LLC (NYSE: JMP) is an investment banking and asset management firm. It has recently released upbeat Q2 earnings, beating a lone analyst estimate in both EPS and revenue.

With operating earnings of $0.29 per share, JMP Group achieved its second-best quarter ever, thanks to strong advisory revenues at JMP Securities, record results in asset management, and investment income that exceeded corporate costs.

JMP has a $140m market cap, total debt is $72m, while cash and equivalents are $126. Meanwhile, the short interest in this stock is 0.22%.

JMP Group has a forward P/E of 9. It doesn’t offer shareholders a dividend. JMP Group displays sales growth of 99% TTM and its 2021 consensus average EPS forecast is $0.83.

The sole analyst consensus on this stock is a 12-month average share price target of $7.50. That gives a potential 6.4% upside. JMP stock appears in 1 ETF.

Oaktree Specialty Lending

Oaktree Specialty Lending (NASDAQ: OCSL) is a fund covering a variety of specialist investments. The firm recently completed its merger with Oaktree Strategic Income Corporation, which should help diversify and strengthen its portfolio.

Its third fiscal quarter results showed a sharp 56% jump in investment income over Q2, largely thanks to interest income earned on assets from the merger. Excluding merger-related income, adjusted total investment income was up 44% at $60.4 million ($0.33 per share).

It recently raised its dividend by 11.5%, giving it a forward yield of 8.4% and the dividend is now 38% higher than a year earlier. Meanwhile, the net asset value (NAV) per share was $7.22 as of June 30, 2021, up 1.8% sequentially.

Armen Panossian, Chief Executive Officer and Chief Investment Officer, said:

“The third quarter was highlighted by strong earnings and continued robust portfolio performance. NAV grew again this quarter, as the portfolio continues to perform well and our credit quality remains excellent.”

OCSL displays sales growth of 41% TTM and its 2021 consensus average EPS forecast is $0.59. Analyst consensus on this stock is a 12-month average share price target of $7.54. That gives a potential 4% upside.

Compass Diversified Holdings

Compass Diversified Holdings (NYSE: CODI) is a private equity firm investing in North America. Current holdings include Velocity Outdoor, Arnold Magnetic Technologies, Ergobaby, Marucci, and more.

CODI displays sales growth of 32.8% TTM and its 2021 consensus average EPS forecast is $2.43. CODI has a $1.7bn market cap, $1.1bn debt, and $110m cash and equivalents. Its dividend yield is 5% and its forward P/E is 27.

Analyst consensus on this stock is a 12-month average share price target of $29.50. That gives a potential 10% upside.

Reliant Bancorp Inc

Reliant Bancorp Inc (NASDAQ: RBNC) is the financial holding company of Reliant Bank. It offers retail banking and residential mortgages.

Reliant Bancorp has a $494m market cap, forward P/E of 10.9 and its dividend yield is 1.6%. RBNC displays sales growth of 64% TTM and its 2021 consensus average EPS forecast is $2.83.

Analyst consensus on this stock is a 12-month average share price target of $35.13. That gives a potential 18% upside.

Jefferies Financial Group Inc

Jefferies Financial Group Inc (NYSE: JEF) is an investment bank and financial services company operating internationally.

It has an $8.7bn market cap and a forward P/E of 12. It also offers shareholders a 2.8% dividend yield. JEF displays sales growth of 50% TTM and its 2021 consensus average EPS forecast is $4.85.

Analyst consensus on this stock gives a 12-month average share price target of $39.50. That gives a potential 12% upside.

Watch out for momentum traps!

While financial stocks have been leading the S&P 500 higher, sentiment can change in the blink of an eye when it comes to trading momentum. A stock that was once a bargain, can turn into a momentum trap.

No investor wants to be stuck with a momentum trap to be left holding the bag at the moment an abrupt change in sentiment causes the share price to plummet.

This is not such a problem for a set-and-forget long-term portfolio whereby investors can afford to ignore the peaks and troughs in favor of a longer time horizon. But for traders, it’s an important caveat to watch.

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

  • Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.
  • Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

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