10 Financial Stocks With Upside

NEW YORK (TheStreet) -- Lloyds Banking Group (LYG), Barclays PLC (BCS), Banco Santander (Brasil) (BSBR), Itau Unibanco Holding (ITUB), ICICI Bank (IBN), Banco Bradesco (BBD), Banco Santander (STD), Credit Suisse (CS), Mitsubishi UFJ Financial Group (MTU) and American Express Company (AXP) are banking and financial stocks with potential to provide gains in the range of 11% to 73%, based on analysts' consensus estimates of price targets.

Meanwhile, Citigroup ( C), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) are estimated to return between 16% and 22% over the next 12 months, based on consensus estimates of analysts polled by Bloomberg.

The Federal Reserve left the benchmark fund rates unchanged on Wednesday. The Federal Open Market Committee (FOMC) believes that the ongoing economic recovery is not satisfactory. The Fed maintained that the plan to purchase $600 billion worth of treasury securities is still on track.

Meanwhile, rising food and crude oil prices have heightened inflation fears; however, the FOMC indicated that longer-term inflation expectations remain stable and could trend lower, going ahead.

In the emerging markets, the People's Bank of China has hiked reserve requirement rates during the last two months, and policy makers in Brazil have increased reserve and capital requirements to flush out excess liquidity. To hedge inflation fears, the government of India has increased policy rates by 25 basis points.

These 10 financial stocks offer investment opportunities, going ahead. These stocks could deliver 11% to 73% returns during the next year with percentage buy ratings of 50% to 100%, according to analysts' estimates.

10. American Express Company ( AXP) is a U.S.-based credit payment card company, catering to both U.S. and international markets.

For the fourth quarter, net income grew 48% to $1.1 billion, compared to a year ago. Provisions against losses totaled $239 million from $748 million in the year-ago period, reflecting higher credit quality.

Total revenue was up 13% year-over-year to $7.3 billion, reflecting higher card-member spending and higher travel commissions and fees. U.S. card services, contributing more than half toward the company's revenue, grew 18% during the quarter ending December 2010.

On the good quarter, Kenneth I. Chenault, chairman and CEO, said, "With card-member spending up 15% this period, we reached all-time records for the quarter and the full year." Over the past 12 months, return-on-equity of the stock has been 27.5%.

9. Mitsubishi UFJ Financial Group ( MTU) is a Japan-based financial services company.

During the last six months, Mitsubishi's global markets' segment performed better, in the scenario of declining interest rates. However, the performance was marred by a drop in profits from retail and overseas corporate segments, attributable to a challenging operating environment.

Net profit increased 13% year-over year in the September quarter, compared to the same period last year, attributable partially to the ongoing initiative to reduce costs. The management plans to shift the company's focus to overseas, corporate and investment banking businesses to garner higher growth rates.

As of September 2010, capital ratio and tier-1 ratio stood at a comfortable 15.24% and 11.6%, respectively. The company's robust capital base would help sustain future growth.

8. Credit Suisse ( CS) is a Switzerland-based leading global financial services company operating in three business segments: private banking, investment banking and asset banking.

Credit Suisse reported a net income of $575 million for the September quarter, compared to $1.5 billion in the June quarter. Core net revenues were $5.93 billion, compared to $7.95 billion in the earlier quarter. Underlying net income was $910 million.

Reviewing the results, Brady W. Dougan, CEO, said in a press statement, "Delivering underlying net income of one billion Swiss francs was a solid result in a quarter characterized by challenging conditions with low market volumes and subdued client activity."' He added, "Our results for the first nine months, with a return on equity of 15.9%, underscore that our business model is able to produce strong returns over the cycle."'

The return on equity was 7% for the September quarter. The tier-1 ratio was 16.7% at the end of September, one of the best in the industry.

7. Banco Santander ( STD) is a Spanish financial group with operations in Europe, South America and the U.S.

During the September quarter, net interest income (NII) continued to drive revenues, growing 12.4% year-over-year. Net operating income rose 4.1% and the efficiency ratio was 42.9% during the same period.

In terms of overall profitability, Continental Europe was the largest contributor at about 37%. The bank's retail banking is the largest business segment, contributed 72% of profits, in the September quarter and wholesale banking division is next in line.

On the operating front, general and administrative costs increased during the quarter. The cost-to-income ratio stood at 44% during the September quarter, compared to 40% in the year-ago quarter.

Banco Santander's asset quality is among the best in Spain. Santander's non-performing loan (NPL) ratio of 3.42% and coverage of 75% compares well by international standards. Spain's NPL ratio stood at 3.88% and coverage at 65%.

6. Banco Bradesco ( BBD) is one of the larger private sector commercial banks in Brazil. Besides banking services, it has insurance operations.

During the September quarter, loan growth was muted. Corporate and auto loans, which accounted for two-thirds of total loans, did not perform well during the quarter. While payroll loans, personal loans and small and medium enterprises' (SMEs) loans grew 71%, 50%, and 27.5%, respectively, compared to the year-ago period.

Moreover, tighter spreads, which declined 30 basis points quarter-over-quarter, plunged net interest margin (NIM) to 7.5% at the end of September.

The bank is one of the biggest insurance players in the country and receives a 25% market share in insurance premiums. Dividend yield stood at 0.9% with a capital adequacy ratio of 16.8%, as of March 2010.

Banco Bradesco's provision coverage stood at 123% during the recent quarter, up 1% compared to the June quarter. Besides, the improvement in asset quality would increase earnings growth in 2011.

5. ICICI Bank ( IBN) is an India-based commercial bank and is the country's biggest private bank in terms of assets.

During the December quarter, ICICI Bank's results came in better than expected. Net profit clocked a 31% year-over-year growth, led by a reduction in provisions and robust growth in NII.

Advances and NII during the quarter observed year-over-year growth rates of 15.3% and 12.3%, respectively. NIMs remained stable at 2.63%, while the current account-savings account ratio increased to 44.1%. The bank's asset quality improved with gross and net non-performing assets declining to 4.75% and 1.4%, respectively, compared to 5.03% and 1.6% in the preceding quarter.

Going head, a higher proportion of bulk deposits may weigh on NIMs. Further, uncertainty in the global scenario may impact growth in the overseas book. The stock gained 27% during the last one year.

4. Itau Unibanco Holding ( ITUB) is a Brazil-based commercial bank operating in the corporate and investment banking segments.

During the September quarter, loan growth stood at 18%. Corporate loan growth was slower at 7%, while SME and retail lending rose 30% and 21%, respectively. However, higher funding costs and competition took a toll on NIM, in turn weighing on NII, which grew 3% quarter-over quarter.

Going forward, earnings could get a boost from lower operating costs. This should become evident in 2011 as branch integration costs are expected to lower. Favorable asset quality trends may also improve earnings. The bank's return on equity at around 25% is encouraging, while the stock delivered 15% gains to investors during the last one year.

3. Banco Santander (Brasil) ( BSBR) is a Brazilian full-service bank with a fourth-largest asset base in the country. The bank operates in three business segments: commercial banking, wholesale banking and asset management.

A lower-than-expected growth in loan loss provisions and operating expenses improved net income growth recently. Net profit was up 31% during the September quarter and 40% during the first nine months of 2010. Commercial Banking contributes around two-thirds of profits to the bank.

Non-performing loans are trending lower, standing at 6.1% during the September quarter, narrowing 50 basis points sequentially and 160 basis points year-over-year.

Around half of the bank's lending is to the retail segment. Overall, credit grew at 16% in September, compared to last year.

The bank focuses on SME and retail lending, which grew 15.8% and 14.2% year-over-year during the September quarter, respectively. BSRB's return on equity improved to 11.8% in the September quarter, compared to 10.8% in June.

2. Barclays PLC ( BCS) is a London-based financial services provider engaged in retail, corporate and investment banking.

Net income increased 15% year-over-year during the first nine months of calendar year 2010. Profit before tax and profit after tax increased 4% and 1%, respectively during the same period.

The Group had a core tier-1 ratio of 10%, better than the regulatory requirement.

Impairment charges on loans and advances declined 25% in the September quarter, compared to the same period last year. The reduction in impairment on loans and advances was primarily due to lower charges in the retail and wholesale portfolios.

Total loans and advances remained flat, compared to the June quarter, reflecting a modest growth in loans across its retail portfolio and a reduction in wholesale exposure.

1. Lloyds Banking Group ( LYG) is a U.K.- based financial services company with operating in segments like retail, wholesale, international banking and insurance.

During the third quarter, Lloyds faced pressure from higher funding costs. However, prudent lending improved NIM. For the second half of 2010, the management expects to see modest margin expansion.

The retail segment continued to experience substantial income growth during the September quarter, primarily attributable to migration of mortgage business onto standard variable rate products.

During the third quarter, the demand for new lending remained subdued, although gross mortgage lending increased. The group mobilized customer deposits during the quarter, compared to the growth delivered in the first half of 2010. However, income from the wholesale segment dipped marginally during the third quarter.

The stock delivered an 18% gain to investors during the last one year. On average, analysts expect the stock to rise 70% over the next one year.

>To see these stocks in action, visit the 10 Financial Stocks With Upside portfolio on Stockpickr.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

More from Stocks

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Dow Leads Major Indices With Triple-Digit Rally

Dow Leads Major Indices With Triple-Digit Rally

Micron CEO: Internet of Things and Data Economy Will Drive Company's Growth

Micron CEO: Internet of Things and Data Economy Will Drive Company's Growth

Tesla Model 3 Delivery Time Falls, but Will It Help the Stock?

Tesla Model 3 Delivery Time Falls, but Will It Help the Stock?

Baidu Stock Plummets After COO Qi Lu Resignation

Baidu Stock Plummets After COO Qi Lu Resignation