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Stock Recommendations in the Financial Sector

Stock Recommendations in the Financial Sector. Chris Rembis, Max Rosenthal, Michelle Scaunas, Nick Sheehan. SIM RECOMMENDATION. Table of Contents. Financial Sector Overview Review Current Holdings Citigroup American Express Wells Fargo Goldman Sachs Metlife Recommendation Questions.

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Stock Recommendations in the Financial Sector

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  1. Stock Recommendations in the Financial Sector Chris Rembis, Max Rosenthal, Michelle Scaunas, Nick Sheehan

  2. SIM RECOMMENDATION

  3. Table of Contents • Financial Sector Overview • Review Current Holdings • Citigroup • American Express • Wells Fargo • Goldman Sachs • Metlife • Recommendation • Questions

  4. Financial Sector Overview The Financial Sector is the second largest sector in the S&P 500 at 14.91% of total market capitalization.

  5. Financial Sector Overview The sector consists of seven industries, broken down by market cap below:

  6. Financial Sector Overview Performance of the S&P 500, categorized by sector

  7. Citigroup Business Analysis • Strong Global Presence • Strong Fundamentals • Favorable Economic Conditions • Strong Card Business (Recently won Costco) Valuation Analysis Financial Analysis • EPS seeing steady growth since getting rid of Citi Holdings • Favorable Ratios indicating stock is cheap • Low P/E and P/B • Target Price = 73.75 (24.2% upside) • Ratio’s should remain strongin the near term (Efficiency Ratio = 58%) • Technical Analysis says sector and stock is correctly priced • 50 day moving average = 59.342

  8. Citigroup 1 Year Stock Price Source: Yahoo Finance

  9. Citigroup

  10. American Express American Express • Business analysis • Mainly credit cards and other payment services • Lost Costco as major partner • Valuation analysis • $84.21 • Loss of revenues combined with increased price have inflated ratios • Financial analysis • Disappointing recent earnings • Will need to find lost Costco revenues elsewhere

  11. American Express 1 Year Stock Price Source: Yahoo Finance

  12. American Express American Express – Discounted Cash Flow Analysis

  13. Wells Fargo Wells Fargo • Business analysis • One of the largest commercial banks • Major accounts scandal last year • Valuation analysis • Target price: $63.35 • Favorable ratios • Financial analysis • High dividend yield • Revenues may decrease due to scandal

  14. Wells Fargo 1 Year Stock Price Source: Yahoo Finance

  15. Wells Fargo Wells Fargo – Discounted Cash Flow Analysis

  16. Goldman Sachs Goldman Sachs • Business Analysis • Second Largest US Investment Bank • Strong Domestic and Global Presence • Restructuring to Introduce a Risk Management Division • Valuation Analysis • Target Price of $262.44, upside of 14.6% • Favorable Ratios • Low Relative P/E, Low Relative P/B • Financial Analysis • High ROE • Potential for Revenue Increases – Lower Taxes and Deregulation

  17. Goldman Sachs 1 Year Stock Price Source: Yahoo Finance

  18. Goldman Sachs Goldman Sachs – Discounted Cash Flow Analysis

  19. MetLife, Inc. Financial Analysis Business Analysis • Largest Domestic Insurer • Favorable Interest Rate Sensitivity • Strong International Brand & Presence • Restructuring to Lead to Margin Expansion & EPS Growth • Solid FCF Growth • Growing Cash Position Can Be Used for Bolt-On Acquisitions Risk Considerations Valuation Analysis • Target Price = 62.00 • Strong Relative Valuation Using P/E Multiples (13.4x vs. 11.4x) • Conservative (1.5% Perpetuity Growth) DCF Valuation Shows Upside • Evolving Regulatory Environment • Potential Restructuring-related Issues • Short-term Growth Issues

  20. MetLife 1 Year Stock Price Source: Yahoo Finance

  21. MetLife, Inc. - DCF

  22. Recommendation Recommendation Overview - Industry • Industry Continued to be Poised for Growth Driven by: • Rising Interest Rates • Strong Regulatory Positioning • Increased International Access to Financial Markets • Falling Tax Rates • Fee-Based Business Models • Despite Underlying Fundamentals, must TRIM overall position, but maintain OVERWEIGHT position Recommendation Overview – Stocks

  23. Recommendation SIM Portfolio Recommendations Other Companies Evaluated

  24. Conclusion Conclusion • We recommend that the SIM Portfolio Committee TRIM the Financials sector to realign the portfolio with the overall market, but maintain an OVERWEIGHT rating as a whole. This can be done by refocusing portfolio around the strongest companies (Goldman & Citi), while simultaneously cutting positions in companies with weaker upside potential (MetLife, Wells Fargo & American Express).

  25. Questions?

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