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Financial Services Stocks Still Look Very Undervalued

James Dennin, Kapitall: We looked for undervalued financial services stocks. It wasn't hard. 

​Though the financial crisis is almost 6 years old and financial markets have since had some of their best years ever – Americans still have not forgiven the big banks. 

That's according to a study sponsored by a coalition of credit unions and community banks to measure consumer sentiment about the financial services sector. Their results, while not exactly surprising, still paint a picture of Americans who are livid at the big banks and still intent on punishing them.

When asked, two-thirds of Americans remain angry at our financial sector about the improprieties of the financial crisis. And one-half still refuse to patronize big banks altogether, citing "guilt" and the improvement to local economies as reason they prefer community banks. 

But there are still many arenas where big banks hold several advantages. They are more likely to have access to the latest technology, and they have more leverage on foreign markets. They can pull more weight with lawmakers. And, though no one really ended up going to jail, a lot of reforms to the financial system were finally pushed though. 

For instance, even before the re-implementation of the Volcker rule, which proscribes banks from making risky trades with publicly underwritten money, banks had already started selling off their riskier assets. 

The verdict is still out on whether it's really time to forgive the big banks. But one thing which isn't up for debate is whether the market has forgiven them.

It hasn't.

We decided to run a screen to see which of the 14 large, diversified financial institutions are the most undervalued. 4 of them were trading at least 15% below their Graham Number.

The Graham Number is a ratio that takes into account a company's price, price-to-equity ratio, earnings, and book-value to try and describe a so-called "fair price" for the company. While only a partial view into what a company's stock price should be, it does provide a pretty good picture of just how much a company might be undervalued based on these 4 important metrics.

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Chart of I:DJI
DOW 17,888.35 +168.43 0.95%
S&P 500 2,102.63 +22.22 1.07%
NASDAQ 5,156.3060 +47.64 0.93%

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