A Watch List of Undervalued Financials

03/04/2020 5:00 am EST

Focus: FINANCIALS

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

This is a good time to research a group of stocks that you might want to buy in coming weeks, explains Crista Huff, editor of Cabot Undervalued Stocks Advisor.

In the meantime, the market’s going to have to stop falling and establish a base before stocks can recover. At that point, there will be bargains galore.

I keep a Buy List of undervalued growth stocks at-the-ready. When there is a preponderance of a certain type of stock within the list, I sit up and take notice.

The list currently holds far more financial stocks than those from any other sector, at least half a dozen of which are investment management, life insurance and annuity companies. They wouldn’t be on the list if they didn’t have strong earnings growth prospects and low price/earnings ratios (P/Es).

In recent weeks, investment banker Morgan Stanley (MS) announced the acquisition of discount broker E*Trade (ETFC). Additionally, global investment manager Franklin Resources (BEN) announced the acquisition of Legg Mason (LM), a smaller global investment manager.

I’m not surprised at this spate of financial industry consolidation, and I expect more M&A activity among investment management, life insurance and annuity companies.

That’s because the multi-year trend toward lower asset management fees, expense ratios and sales charges is causing financial companies to search for additional ways to generate profit growth.

To reiterate, this is a list of undervalued growth stocks, with share prices that have been drastically reduced due to the market correction, almost every one of them paying a dividend, and they’re sitting in a sweet spot of potential M&A activity. Here they are:

Ameriprise Financial (AMP)
Athene (ATH)
Brighthouse Financial (BHF)
Equitable Holdings (EQH)
Goldman Sachs Group (GS)
Lincoln National (LNC)
Voya Financial (VOYA)

Of these seven excellent companies, Athene and Brighthouse have the most attractive price charts — “attractive” being a relative term during a market correction. I would guess that these two are capable of settling down and then rebounding faster than the others.

As you contemplate which stocks to add back into your portfolios in the coming weeks, seriously consider one or more of these investment, life insurance and annuity companies.

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