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Quarter-End Insights

Financial Services: Outlook Improved but Still Overpriced

Most financial stocks are trading above our fair value estimates.

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The Morningstar US Financial Services Index has significantly underperformed the Morningstar US Market Index over the previous year, returning 1.3% compared with 19.4%, but outperformed in the previous quarter, up 18.2% compared with the market’s increase of 12.8%. After the recent rally in stock prices, the median North American financial sector stock trades at a 6% premium to its fair value estimate compared with about a 30% discount at the end of the first quarter of 2020. Many financial sector stocks are fairly valued, according to our assessment, with the few North American financial sector stocks that we cover that are trading at meaningful discounts to our fair value estimates having company-specific issues and are turnaround stories.


Financials outperformed in the fourth quarter - Morningstar

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Michael Wong does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.