This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

5 Reasons Why Financials Will Outperform: Goldman Sachs

KBW recommends conservative investors should consider a more defensive stock portfolio.

Goldman's third reason for financial names to outperform the broad market is that higher returns on equity should lead to higher valuations. Financial stocks are still producing returns on equity below 10% with price-to-book ratios of 1.1, according to the firm. The returns may stay low for some time as banks meet higher capital requirements and increased regulatory costs, but the analysts see median ROE improving to 10% by 2014.

Fourth, following the results of the Federal Reserve's Comprehensive Capital Analysis and Reviews (CCAR), banks are increasing dividends and share buybacks by 16% and 17%, respectively, versus last year. "Assuming payout ratios increase by a comparable amount in 2014, effective yields could reach 6.7% for the industry (2.5% dividend yield)," according to Goldman.

Fifth, rising home prices should boost earnings. Goldman economists expect home prices to rise 3% through third quarter of 2013 and then 4% through the third quarter of 2014. Goldman Sachs financial analysts believe that a 5% rise in home prices would increase their earnings estimates by 13%. "While the recovery in housing is well understood, it continues to provide strong support for earnings and credit trends with risks skewed to the upside," the analysts wrote.

-- Written by Shanthi Bharatwaj from New York
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
XLF $23.17 -1.20%
BAC $14.52 -1.90%
C $46.33 -0.86%
JPM $62.81 -1.20%
WFC $49.94 -0.93%


Chart of I:DJI
DOW 17,685.37 -145.39 -0.82%
S&P 500 2,057.08 -18.73 -0.90%
NASDAQ 4,754.5650 -50.7260 -1.06%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs