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) -- Financial stocks have had a tough time so far in 2011, suggesting the sector might be a good place to look for bargains.


Financial Select Sector SPDR

(XLF) - Get Financial Select Sector SPDR Fund Report

a widely following exchange traded fund that tracks financial stocks, is down 2.41% so far this year, compared to a gain of 4.66% for the Standard and Poor's 500 and a 6.73% gain for the Dow Jones Industrial Average.

Many of the top holdings of XLF are down by a much greater margin than the fund.

Bank of America

(BAC) - Get Bank of America Corp Report

, which has been slammed by mortgage issues that are the legacy of its 2008 acquisition of Countrywide Financial, has fallen 14.28%.


(C) - Get Citigroup Inc. Report

, which has less exposure to the U.S. housing market but substantial foreign exposure, has fallen 14.48%.

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

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, posted solid first quarter profits, but solid is not the definition of success at Goldman, shares of which have also been battered by concerns the investment banking giant may face criminal charges stemming from mortgage securitization practices leading up to the crisis.

"Investors have reduced their exposure to financials as a list of revenue headwinds, elevated costs, and macro issues (NIM compression, a lack of loan growth, a seasonal slowdown in capital markets activity, elevated litigation expenses, mortgage losses, declining home prices, and sovereign risk in peripheral Europe) trumped decent 1Q11 earnings results," wrote Nomura Securities analysts in a report published Friday.

While Nomura's analysts note that the selloff has created some apparent bargains, they add that ongoing concerns about declining home values, litigation exposure and worries the largest financial stocks designated systemically important financial institutions (SIFIs)will be forced by regulators to hold larger capital cushions to protect against losses, among other issues, continue to hold back a potential rally.

Still, Nomura's analysts see "positive catalysts on the horizon." Among these is a pickup in lending activity, a strong outlook for mergers and acquisitions and the eventual rise in interest rates allowing financial companies to reinvest all the cash they take in at more attractive yields.

Nomura is most bullish on credit card lenders, especially

Capital One

(COF) - Get Capital One Financial Corporation Report


Discover Financial Services

(DFS) - Get Discover Financial Services Report

and asset managers led by

Franklin Resources

(BEN) - Get Franklin Resources, Inc. (BEN) Report



(IVZ) - Get Invesco Ltd. (IVZ) Report


BlackRock Inc.

(BLK) - Get BlackRock, Inc. Report


But those are not the cheapest stocks in the financial sector. Of course there are many ways of defining "cheap." To come up with

our list

, we looked at the stocks in the S&P 500 that trade at the lowest price to earnings ratio versus their estimated earnings four quarters from now, according to analyst estimates from


. Here is what we found.



(AFL) - Get Aflac Incorporated Report

Price versus


earnings estimates one year out: 7.49

Standard & Poor's Equity Research insurance analyst Bret Howlett raised his opinion to "buy" from "hold" in a May 23 report, praising the insurer's moves to reduce risk in its investment portfolio, according to

SNL Financial


Following a recent meeting with analysts, Sandler O'Neill retained its "buy" rating but dropped its price target to $62 from $64. (Aflac shares closed at $48.82 on Tuesday.) "Overall, we viewed Aflac's 2011 Financial Analyst Briefing meeting as chilled," they wrote, citing 2012 earnings growth guidance that was below their expectations. The stock fell after the meeting, though Sandler's analysts argue investors overreacted.

"We continue to expect

Aflac to report a 22.6%

Return on Equity in 2012," they wrote, noting Aflac CEO Dan Amos "made a point of stating that the 2012 guidance was its pessimistic view."

Big exposure to Japan has also hurt Aflac's stock, though Sandler's analysts note management guidance does not take into account the stronger yen, which will have a positive effect on earnings.


Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

Price versus


earnings estimates one year out: 7.47

Sandler O'Neill analyst Jeff Harte saw "both positives and negatives," in the bank's first quarter results. The positives, he wrote, included improved equity and interest rate products trading strength and a decline in risk weighted assets even as overall assets increased.

However, Harte says Morgan Stanley needs to show it can outperform peers in fixed income trading, while the latest earnings report suggests the numbers are merely average in that area.

Another troubling sign for Morgan Stanley came from Sanford Bernstein analyst Brad Hintz, who told

Bloomberg Radio

in a recent interview that Morgan Stanley must keep compensation levels high to stave off competitors like


(UBS) - Get UBS Group AG Report

and Bank of America, who are trying to lure away talented executives.

Ticonderoga Securities has a "buy" on Morgan Stanley, citing the bank's stronger capital position in the wake of a decision to convert preferred shares into common equity. Ticonderoga also cited improving trends in retail and asset management, businesses that account for just 30% of income but are expected to play an ever-greater role in the future of the company.


JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

Price versus


earnings estimates one year out: 7.45

JPMorgan has been one of the better performing big bank stocks so far this year. A further case for bullishness comes from a May 19 Deutsche Bank report, which argues JPMorgan is gaining market share in its fixed income currencies and commodities trading operations and its credit card business.

Still, the shares have struggled during the past six weeks or so, in what Deutsche Bank analysts attribute to "disappointment over continued high mortgage and related hits ($17b since 1Q10), sluggish macro data,uncertain regulatory rules, and general concern over the revenue outlook at banks."

Following the bank's first quarter earnings report April 13, Bank of America analyst Guy Moszkowski noted investment banking revenue that very strong relative to expectations, but noted that expenses rose while revenue in the division fell slightly due in large part to higher compensation costs.

Stifel Nicolaus recently initiated coverage on the bank with a "hold," arguing "with the Fed on hold, loan growth stagnant, the broader market doubling the past two years, and 1Q being the seasonal peak in trading revenues, it is hard to identify a near-term catalyst for approximately 75% of the company's revenue base."



(MET) - Get MetLife, Inc. (MET) Report

Price versus


earnings estimates one year out: 7.41


(MET) - Get MetLife, Inc. (MET) Report

's new president and CEO, Steven Kandarian, cited "record top line performance," during a May 5 conference call following the insurer's announcement of first quarter earnings.

Revenues of $11 billion were up 27% from the first quarter of 2010 and 15% from the fourth quarter. Operating earnings rose by $1.4 billion, 64% above the first quarter of 2010 and 17% higher than the fourth quarter.

One of the issues facing MetLife is the question of whether it will be considered a systemically important financial institution, which would potentially mean it would have to hold more capital as a buffer against losses, dragging returns lower.

"We don't believe the life insurance industry should be considered systemically important, and we think there's a lot of good reasons why, but time will tell about where that decision gets made," said CFO William Wheeler on a recent conference call with analysts.


Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

Price versus


earnings estimates one year out: 6.84

Goldman looks cheap versus forward estimates because analysts tend not to incorporate political risk in their earnings projections, especially for Goldman, where most still downplay the threat the investment bank and/or top management are vulnerable to being criminally indicted--never mind convicted.

Still, investors clearly are concerned, which is why they drove down the stock sharply after two analysts--Richard Bove of Rochdale Securities and Chris Maimone of Standard & Poor's equity research--downgraded the stock May 12, citing threats from new rules that could reduce profits. Rochdale's Bove also noted

an investigation by the Commodity Futures Trading Commission

related to how a futures industry client of a Goldman clearing unit handled customer funds. Goldman noted the issue in a Securities and Exchange Commission filing earlier this month.

Also, according to a May 11 report from Barclays Capital, Goldman backed away from a long-held assertion it would be able to achieve return on equity of 20% despite new regulations that limit its ability to pursue proprietary trading and private equity investing--long some of its most profitable activities.


Assurant Inc.

(AIZ) - Get Assurant, Inc. Report

Price versus


earnings estimates one year out: 6.81

Assurant provides specialized insurance products and related services in North America and select worldwide markets, according to

SNL Financial

. It has four main businesses -- Assurant Solutions, Assurant Specialty Property, Assurant Health, and Assurant Employee Benefits. The Assurant business units provide debt protection administration; credit-related insurance; warranties and service contracts; pre-funded funeral insurance; lender-placed homeowners insurance; manufactured housing homeowners insurance; individual health and small employer group health insurance; group dental insurance; group disability insurance; and group life insurance. Assurant has about $27 billion in assets and $8 billion in annual revenue. It has approximately 14,000 employees worldwide and has its headquarters in New York City.

Net operating income for the first quarter was $139.3 million, or $1.37 per share, a 10% drop from a year ago. The company said better results at its Assurant Solutions unit were offset by declines in the other businesses.

Earlier this month, Assurant declared a quarterly dividend of 18 cents per share, a 13 percent increase above the previous quarterly payout of 16 cents per share.


Lincoln National

(LNC) - Get Lincoln National Corporation (LNC) Report

Price versus


earnings estimates one year out: 6.78

With headquarters in the Philadelphia region, the companies of Lincoln Financial Group had assets under management of $162 billion as of March 31, 2011. Through its affiliated companies, Lincoln Financial Group offers annuities life, group life, disability and dental insurance; 401(k) and 403(b) plans; savings plans; and comprehensive financial planning and advisory services.

On May 5. Lincoln National restructured its insurance and retirement business, stating the move would increase focus on results in its life insurance, annuities and group protection businesses, according to

SNL Financial


Lincoln recently raised guidance for 2011 share buybacks, according to


, a move management said does not preclude a raise in the company's dividend.

Lincoln bought back $75 million of common stock in the first quarter and said it would buy back another $100 million to $150 million through the rest of 2011,



Lincoln had a negative tax rate of 24.16% in 2010, while its peers on average had a negative rate of nearly 40%, according to


data. Lincoln hasn't been profitable since 2006.


Hartford Financial Services

(HIG) - Get Hartford Financial Services Group, Inc. (HIG) Report

Price versus


earnings estimates one year out: 6.45

The Hartford is one of the largest providers of investment products and life, property, and casualty insurance to individuals and businesses in the U.S. Hartford Fire Insurance Company, founded in 1810, is the oldest of The Hartford's subsidiaries. At December 31, 2010, total assets and total stockholders' equity of The Hartford were $318.3 billion and $20.3 billion, respectively.

The Hartford has been selling off assets as it tries to focus on "core" insurance operations. It announced the sale of Federal Trust bank to

CenterState Banks

(CSFL) - Get CenterState Bank Corporation Report

on Monday, and

Bloomberg News

reported May 12 it is shopping its mutual fund unit, a sale that could bring in $1.5 billion or more.

Following The Hartford's first quarter earnings report, Keefe, Bruyette & Woods published a research note May 3 calling the performance a "solid beat as a strong personal lines underwriting and better investment income more than offset softer P&C commercial lines and group benefits results."


Bank of America

(BAC) - Get Bank of America Corp Report

Price versus


earnings estimates one year out:5.99

Bank of America has been the hardest-hit by mortgage-related issues among the four biggest U.S. banks. Mishaps in Bank of America's servicing business have attracted the most attention. Most notorious are the "robosigners," who sign off on hundreds of even thousands of home foreclosures each month, while falsely claiming to have reviewed each situation individually.

But foreclosure-related issues are not thought to be the biggest problem for Bank of America. Potentially more serious are so-called "putbacks" of mortgage-backed securities (MBS)--bonds sold by Bank of America stuffed with mortgages that were fraudulent or in some other way did not meet the criteria originally promised to investors. Bank of Americahas settled many of these claims with government sponsored enterprises

Fannie Mae



Freddie Mac


, but still faces billions in potential claims from private investors in MBS. Also weighing on Bank of America is the continued slowness of the U.S. housing market, where it has more exposure than any other U.S. bank.


Genworth Financial

(GNW) - Get Genworth Financial, Inc. Class A Report

Price versus


earnings estimates one year out: 5.90

A recent report from Sandler O'Neill describes Genworth as a company that sells insurance and investment products in the U.S. and internationally. It divides its business into three segments: Retirement and Protection, International and U.S. Mortgage Insurance. The Retirement and Protection segment includes life insurance, long-term care insurance, group life insurance, health insurance, individual fixed and variable annuities, group variable annuities and single premium immediate annuities. The International segment offers mortgage insurance primarily in Canada, Australia and Europe and lifestyle insurance in Europe. Mortgage insurance includes insurance products that facilitate home-ownership by enabling borrowers to buy homes with low-down-payment mortgages.

Sandler has a "hold" on Genworth and a $13 price target over the next 12 months. Genworth shares closed at $11.12 on Friday. While Sandler's analysts expect Genworth's international segment to be a steady source of earnings, they see weakness in retirement and protection. They also have concerns that claims will pick up in mortgage insurance since that segment benefitted from a temporary slowdown in claims by mortgage servicers.

>>To see these stocks in action, visit the

10 Cheapest Financial Stocks

portfolio on Stockpickr.


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.