In this article, I will examine four financial stocks that I think have room to grow during the next decade. Please use my research as a starting point for your own due diligence.
Maiden Holdings Ltd. (MHLD, Financial) – Offering a rare growth option in the property and casualty industry, MHLD is a solid blend of growth and income. The company offers a dividend yield of 3.7% at its current trading price, which is solid for an industry marked by solid performance and low volatility. The basis of the growth element is the smaller market capitalization of the company. Relative to competitor Hannover Ruckversich (HVRRY.PK, Financial) which has no price-to-earnings over growth (PEG) ratio, due to a lack of growth, MHLD has a PEG ration of 0.72. Typically a reading below 1.0 is considered attractive. The industry average PEG ratio is 1.1. Furthermore, the company has year-over-year quarterly revenue growth of 34%. This suggests that MHLD is in a very favorable growth position, particular relative to competitors and the industry. This growth does not come at the expense of operating efficiency with the company having an operating margin of 6.7% relative to 6.8% for HVRRY.PK and 5.7% for the industry. Overall, the combination of a solid income element and an impressive growth make this a great addition to any portfolio.
PennantPark investment Corp. (PNNT, Financial) – Despite a relatively small market capitalization and an average daily trading volume just over three hundred thousand shares per trading session, PNNT offers a great investment profile. At current levels, the company is displaying growth of over 4% per year, projected well into the future. This level lands the stock on several analysts watch list for long-term performance. In addition, the stock has a dividend yield of 11.1%, also landing it on a different set of watch lists. The combination of these two factors make the stock very attractive. Finally, with the increased level of coverage, largely a result of its inclusion in the aforementioned lists, recent attention may serve as a catalyst to drive the stock higher. Overall, the stock is attractive and the timing seems reasonable to add this name to one’s portfolio.
Leucadia National Corp. (LUK, Financial) – While classified as a conglomerate, this growth financial is an attractive addition to any portfolio. The two competitors which are appropriate for comparison are Apollo Investment Corp (AINV) and The Blackstone Group (BX). While each of the comparison companies have their own appeal, they help to underline the attractiveness of LUK. Where AINV has year-over-year quarterly revenue growth of 2.7% and BK had no growth, LUK had year-over-year quarterly revenue growth of 27%. LUK dramatically trails AINV on a dividend yield basis, yielding 1.0% as compared to 16.3% for AINV and 2.7% for BX. On a value basis, where the comparison companies failed to have positive earnings, and thus no price-to-earnings ratios, LUK is currently trading at a price-to-earnings multiple of 3.85. With an industry average above 12, LUK represents an attractive value at current levels. Finally, on an operating basis, LUK has an operating margin of 56.9% relative to 68.2% for AINV and -2.5% for BX. With an industry average of 6.4%, LUK is well positioned within the industry. With a strong growth profile, the stock is a solid addition to a financial portfolio. For some of Leucadia's Ian Cumming's own picks, look at our analysis here.
Morningstar Inc. (MORN, Financial) – While this can be a very difficult industry in which to make comparisons because of the range of services that are covered, Thompson Reuters (TRI, Financial) is the best comparison because of its diversity, although TRI is a significantly larger company; TRI has a market capitalization of $23.1 billion relative to $3.0 billion for MORN. While TRI is a better value on a P/E basis, with a multiple of 16.7 relative to 32.4 for MORN, TRI had year-over-year quarterly revenue growth of 6.1% as compared to 14.5% for MORN. In terms of operating efficiency, MORN has an operating margin of 22.4% relative to 16.2% for TRI. In terms of trading catalysts, as investors continue to dust themselves off after the shakeup that began in 2008, ratings services like those supplied by MORN should continue to be in demand. Overall, the financial metrics and the growth profile of this stock make is a sound addition to both a growth-centric financial portfolio or a balanced portfolio. In either event, the stock is a solid buy at current levels and probably still has 30% upside.
Maiden Holdings Ltd. (MHLD, Financial) – Offering a rare growth option in the property and casualty industry, MHLD is a solid blend of growth and income. The company offers a dividend yield of 3.7% at its current trading price, which is solid for an industry marked by solid performance and low volatility. The basis of the growth element is the smaller market capitalization of the company. Relative to competitor Hannover Ruckversich (HVRRY.PK, Financial) which has no price-to-earnings over growth (PEG) ratio, due to a lack of growth, MHLD has a PEG ration of 0.72. Typically a reading below 1.0 is considered attractive. The industry average PEG ratio is 1.1. Furthermore, the company has year-over-year quarterly revenue growth of 34%. This suggests that MHLD is in a very favorable growth position, particular relative to competitors and the industry. This growth does not come at the expense of operating efficiency with the company having an operating margin of 6.7% relative to 6.8% for HVRRY.PK and 5.7% for the industry. Overall, the combination of a solid income element and an impressive growth make this a great addition to any portfolio.
PennantPark investment Corp. (PNNT, Financial) – Despite a relatively small market capitalization and an average daily trading volume just over three hundred thousand shares per trading session, PNNT offers a great investment profile. At current levels, the company is displaying growth of over 4% per year, projected well into the future. This level lands the stock on several analysts watch list for long-term performance. In addition, the stock has a dividend yield of 11.1%, also landing it on a different set of watch lists. The combination of these two factors make the stock very attractive. Finally, with the increased level of coverage, largely a result of its inclusion in the aforementioned lists, recent attention may serve as a catalyst to drive the stock higher. Overall, the stock is attractive and the timing seems reasonable to add this name to one’s portfolio.
Leucadia National Corp. (LUK, Financial) – While classified as a conglomerate, this growth financial is an attractive addition to any portfolio. The two competitors which are appropriate for comparison are Apollo Investment Corp (AINV) and The Blackstone Group (BX). While each of the comparison companies have their own appeal, they help to underline the attractiveness of LUK. Where AINV has year-over-year quarterly revenue growth of 2.7% and BK had no growth, LUK had year-over-year quarterly revenue growth of 27%. LUK dramatically trails AINV on a dividend yield basis, yielding 1.0% as compared to 16.3% for AINV and 2.7% for BX. On a value basis, where the comparison companies failed to have positive earnings, and thus no price-to-earnings ratios, LUK is currently trading at a price-to-earnings multiple of 3.85. With an industry average above 12, LUK represents an attractive value at current levels. Finally, on an operating basis, LUK has an operating margin of 56.9% relative to 68.2% for AINV and -2.5% for BX. With an industry average of 6.4%, LUK is well positioned within the industry. With a strong growth profile, the stock is a solid addition to a financial portfolio. For some of Leucadia's Ian Cumming's own picks, look at our analysis here.
Morningstar Inc. (MORN, Financial) – While this can be a very difficult industry in which to make comparisons because of the range of services that are covered, Thompson Reuters (TRI, Financial) is the best comparison because of its diversity, although TRI is a significantly larger company; TRI has a market capitalization of $23.1 billion relative to $3.0 billion for MORN. While TRI is a better value on a P/E basis, with a multiple of 16.7 relative to 32.4 for MORN, TRI had year-over-year quarterly revenue growth of 6.1% as compared to 14.5% for MORN. In terms of operating efficiency, MORN has an operating margin of 22.4% relative to 16.2% for TRI. In terms of trading catalysts, as investors continue to dust themselves off after the shakeup that began in 2008, ratings services like those supplied by MORN should continue to be in demand. Overall, the financial metrics and the growth profile of this stock make is a sound addition to both a growth-centric financial portfolio or a balanced portfolio. In either event, the stock is a solid buy at current levels and probably still has 30% upside.
