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'Nontraditional' Strong Results: Trading Bank Earnings, Part 3

Stocks in this article: SCHW MS GS COF DFS AXP STT NTRS ALLY

NEW YORK (TheStreet) -- How can you get the most out of "nontraditional" banks stocks?

In this third installment of my Trading Bank Earnings series we look at the nine largest publicly traded financial service firms including such familiar names as Charles Schwab (SCHW), Morgan Stanley (MS) and Goldman Sachs (GS).

Unlike the money center and regional banks that focus primarily on traditional retail banking services (deposits and lending money), these and the other six firms, although chartered as banks, have primary lines of business that include credit card companies, investment brokers and asset management firms.

Of course, retail banks, analyzed in the previous articles in this series (Trading Bank Earnings Part 1 and Trading Earnings, Part 2), do have crossover business into other lines, too, but they do not make up a majority of their business.

The financial service companies, as a group, performed well, with six of the nine largest companies beating analysts' estimates. So how can you profit going forward?

Among the groups I follow, the financial service companies had a 67% rate of meeting or beating analysts' estimates and stock price appreciation of 1.6% over three weeks (ending May 2), and well ahead of all other groups including the four money center banks, at 0.4%, the nine regional banks, at 0.5% and the eight global banks, at 0.9%.

Of the sub-groups within the financial service banks, investment brokers performed the best with a 100% beat rate and 2.8% stock price appreciate in three weeks with credit card companies a close second. The table below indicates key metrics and highlights which banks met or beat earnings and those that missed and by how much.

The financial service type banks that beat first-quarter 2014 expectations were: Capital One Financial (COF), which beat by a group leading 16%; Goldman Sachs, beat by 15.5%; Morgan Stanley, by 13.3%; Charles Schwab, beat by 9.1%; Discover Financial Services (DFS), by 4.8%; and American Express (AXP), by 2.3%.

Three banks in the group missed estimates: State Street Corp. (STT), missed by 1%; Northern Trust Corp. (NTRS), by 3.8%; and the biggest miss, newly publicly traded Ally Financial (ALLY) by 21.4%. This makes the eighth miss in a row for Northern Trust and the five of 12 of the last quarters for State Street. Ally Financial just became public on Jan. 28.

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