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Quarter-End Insights

Be Careful with Financial Services Stocks Today

Banks are the most undervalued subsector.

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The Morningstar US Financial Services Index has significantly underperformed the Morningstar US Market Index over the previous year, down 5.7% compared with an increase of 7.7%. However, the U.S. financial sector has had a strong recovery over the previous quarter, up 19% compared with the market's 23%. Even with the recent increase in stock prices, the median North American financial sector stock still trades at an 11% discount to its fair value estimate but below a 30% discount a quarter ago. With our assessment that many financial sector stocks are less undervalued than they were a quarter ago, investors should be much more discerning of which stocks they choose and cognizant of the risks they’re taking.

Financials made a comeback in the previous quarter. - source: Morningstar

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