Thursday, December 1 2022

Editor’s Note: This article was updated on June 14, 2022 to correct MGIC Investment Corporation’s price to tangible book value.

These six outstanding financial stocks are attractive to value investors because they are selling below their book value and have other attractive valuation metrics. This means that their equity, the amount remaining after deducting all liabilities from assets, is greater than the companies market value.

If we exclude intangible assets such as goodwill, patents, trademarks and other intangibles from the asset side, the book value is referred to as tangible book value (TBV). After dividing this by the number of shares, this becomes the TBV per share (TBVPS) and we can compare it to the stock price.

Value investors are generally looking for a margin of safety. They want to see a stock that is no more than 2/3 or slightly more of the TBVPS of a financial stock.

The reason is simple. We can never really know the real value of most financial assets like loans, bonds, notes and mortgages. If rates go up, their TBV goes down, but the most recent quarterly figure doesn’t include this recent depreciation in value. Investors therefore want to see a discount below TBVPS.

Let’s dive in and look at these financial stocks.

Teleprinter Company Current price
AIG American international group $52.78
FROM Assured guarantee $57.08
VS Citigroup $46.34
NECB North East Community Bancorp $11.04
MTG MGIC investment company $12.66
ERP Prudential Financial $95.42

American International Group (AIG)

American international group (NYSE:AIG) trades for approximately 84% of the book value of its common stock. Its book value as of March 31 was $55.944 billion.

As of June 13, its market value was $40.9 billion. This is based on 792.19 million shares outstanding (the number of shares on its May 5 filing date for Q1 10-Q) times its price of $51.63 on June 13.

As a result, AIG’s market value of $40.9 billion is only 73% of its equity of $55.94 billion.

After excluding $4.35 billion of intangible assets, AIG’s tangible book value (TBV) is $51.58 billion. This equates to $65.23 per share for its TBVPS. So the stock price, at $51.63, is only 79.15% of its TBVPS.

This leaves a very good margin of safety for value investors. For example, with the dividend of $1.28, AIG stock is now yielding 2.48%, and given its 2022 earnings forecast of $5.29, the stock is on a forward multiple of 9 .76x. For 2023, the stock is on an 8.1x multiple with its earnings forecast of $6.34 based on the average of 14 analysts.

AIG plans to spin off its P&C division, Corebridge Financial, over the next few months. AIG will still hold a majority stake in this health and pension insurance company as a public company. It is therefore one of the best cheap financial stocks selling below book value.

Assured Guarantee (AGO)

Assured guarantee (NYSE:FROM) is both an insurance company and an asset management company, which is growing to become the majority of its revenue. At $51.63 on June 13, it is trading below 60% of its TBVPS of $86.61. This equates to a P/TBVPS ratio of 0.596.

Another way to look at it is that, theoretically, an investor can realize a return on investment of 67.8% if the stock were to rise or the company was sold for its tangible book value. Indeed, if you divide 1 by 0.596, you get a return on investment of 0.678.

Additionally, AGO has paid a dividend every year consecutively for the past 17 years and its current dividend is $1 per share. This gives AGO a decent dividend yield of 1.80%.

Additionally, analysts forecast 2023 earnings to rise 6.5% from $4.28 to $4.56. This puts the stock on a forward multiple of 12x 2022 earnings and just 11.3x 2023 earnings per share (EPS).

This is a good return for most investors and shows that it is one of the best financial stocks on this list.

Citigroup (C)

Citigroup (NYSE:VS) is trading below its book value and its tangible book value. On June 13, the stock was at $45.69, but its book value, as of March 31, was $92.03 and its TBVPS was $79.74, according to Looking for Alpha.

So even relative to its TBVPS, the stock is heavily discounted at just 57.3% of its tangible book value per share. This leaves plenty of room in case one of the bank’s loans blows away, as often happens during a recession.

At this point, Citigroup pays a dividend of $2.04 and that equates to a 4.46% yield on its June 13 price of $45.69. Additionally, at this point, analysts are still expecting higher earnings in 2023 of $7.39, or 7.9% higher than forecast earnings for 2022 of $6.85.

In addition, TipRanks reports that the average price target of 15 analysts is $64.67 per share, 41.5% higher than yesterday’s price. This shows that trading below book value on a tangible book value yields a good potential return on investment for value investors.

Northeast Community Bancorp (NECB)

North East Community Bancorp (NASDAQ:NECB) is a White Plains, New York-based bank holding company that provides personal and business loans. It has seven full-service branches in New York and three full-service branches in Massachusetts. Most of its loans are related to real estate.

The key point about NECB is that its book value and tangible book value per share are both significantly higher than the stock price. For example, its March 31 book value was $16.95 per share and the TBVPS was $16.91.

This means that at the June 13 price of $11.01, it is only 65% ​​of its TBVPS. This implies that if the bank were to sell to another company from its TBVPS, the investors would make a lot of money. For example, investors who buy NECB shares will realize a return on investment of 53.6%.

On top of that, NECB pays a dividend of 72 cents per year. This equates to an annual dividend yield of 6.54% and earnings forecasts for 2022 at $1.15 more cover this figure by around 60%. It also puts the stock on a cheap forward multiple of just 9.6x. Since EPS for 2023 is expected to be 14.8% higher at $1.32, the multiple drops to 8.34x for 2023.

So here we have a bank stock at 2/3 of tangible book value, earnings cover the dividend by 60%, giving a yield of 6.54% and a forward P/E of 8.3x for 2023. is the definition of a margin – of the stock of security value.

MGIC Investment Corp (MTG)

MGIC investment company (NYSE:MTG) is an insurance company that provides private mortgage insurance that provides payment default protection on individual residential mortgages. This is a very profitable business, but given the expected decline in mortgages, the stock is now cheap

At $12.36 on June 13, MTG stock is trading for just 83.7% of its tangible book value per share of $14.75 as of March 31. It also pays an annual dividend of 32 cents (quarterly), which its earnings of $2.14 this year more than cover. . This gives the stock a dividend yield of 2.59%. Moreover, its advanced multiple of only 5.75x makes MTG stock very cheap.

This is to play on the fact that the market has already priced in the decline in mortgages into its stock price. Given that he’s well below tangible book value and the likelihood that his assets are reasonably safe, it seems like a good bet for value investors.

Prudential Financial (PRU)

Prudential financial (NYSE:ERP) EPS, although expected to decline from $14.58 in 2021 to $11.54 in 2022, is expected to rise nearly 10% to $12.63 in 2023.

This puts PRU stock on a forward P/E multiple of 8.2x for 2022 and 7.5x for 2023. Additionally, the stock is only trading for 80% of its TBVPS of $117.06 as of 31 March, according to Looking for Alphaa. This is based on its price of $94.25 as of June 13.

PRU stock also pays a dividend of $4.80 per share, less than a third of its 2022 earnings forecast. That produces a dividend yield of 5.09% at its price of $94.25.

As a result, a lot of very bad news is already tied to this stock, and it reflects analysts’ fears of a recession. This makes it a good potential investment for value investors looking for financial stocks selling below their book value.

As of the date of publication, Mark Hake did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to publishing guidelines.


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