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Welcome to this part of the series. A quick recap of what is done so far:
Part 1: Defined a basic framework for the portfolio, Parts 2 to 7: bought Alphabet, Emerson, Infineon, BMW and the UK Gilts (also shared 1 portfolio update). In part 8, I began evaluation of financial stocks, starting with European financials and shortlisted Deutsche Bank to be added to the portfolio.
In this part, I look to US financials for potential additions to the portfolio: JPMorgan, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs.
Company financials:
Annual revenue to market cap multiple between 2.8 and 3.2, except for Citi (1.44).
Net interest income around 70% of interest income on loans. Bank of America leads with 73% and Citi is the lowest at 64%.
Citi has an earnings yield of 13.7% while JPMorgan, Goldman Sachs and Bank of America have an average earnings yield of 9%.
Efficiency and Valuations:
Price to Tangible Book between 0.6 and 2.1, with Citi at the lowest and JPM at the highest.
PE ratio between 7.3 and 14.7 with Citi at the lowest and MS at the highest.
PEG ratio negative for all, least for Citi and GS.
Low Return on Assets between 0.6 to 1%
Operating income margin between 26 and 38% with Citi at the lowest and JPM at the highest.
Trends in financials and fair value:
Revenues have fallen for all five financials since 2021, with Citi and JPM showing some signs of bottoming out.
Net interest income on the rise, no surprise there with the rising interest rate scenario.
Citi has room to improve non interest income and bring it closer to BAC.
Operating income margin have been falling along with revenues, likely due to rising provisions for loan losses.
Fair Value and Upside potential: on an average of both methods, BAC has the highest potential upside followed closely by Citi.
On the charts: comparing performance from 2000, stock price of Citi has under-performed its peers by a wide margin. There is value in the stock and potential for an upside. But for some reason, which I am unable to see in this valuation - the stock is stuck in a range. Before making a decision about adding it to the portfolio, I am going to compare it to the Asian financials as well.
In the next part of this series, I look to evaluate Asian financial stocks.
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