Financial sector stocks and related exchange traded funds have largely fallen behind the broader market this year. However, this area of the market is beginning to look like a good value play.
The Financial Select Sector SPDR (NYSEArca: XLF) has increased 8.0% year-to-date, compared to the 8.9% rise in the S&P 500. [Financial ETFs Could Outperform Ahead of Fed Tightening]
While the broad markets have been hovering near record highs, with the broader equities market looking a little pricier. many financial stocks remain relatively cheap. For instance, Wells Fargo (NYSE: WFC) is trading at 13 times earnings while JPMorgan (NYSE: JPM) is hovering around 15 times, whereas the S&P 500 index is trading at about 17 times earnings, reports Bryan Borzykowski for CNBC.
XLF, which has a 8.7% position in WFC and 7.9% in JPM, shows a price-to-earnings ratio of 15.2.
Looking ahead, Andrew Sleeman, a portfolio manager with Franklin Mutual Financial Services Fund, argues that bank stocks still have a lot of room to grow.
“The economy is starting to pick up, we’re starting to see some loan growth, and an interest-rate rise could lift the whole sector,” Sleeman said in the article. “If rates do climb, then financials could be the sector to be exposed to.”
Erik Oja, a banking industry analyst with S&P Capital IQ, believes that while the sector’s valuations have been fairly volatile since the economic downturn, financial stock valuations are now stabilizing.