Recent months been tough for financial stocks, which have been shaken by volatile markets. These three companies have all been punished as a result, but could they be bang on the money again?
Aviva
I’ve clung onto my stake in struggling insurer Aviva (LSE: AV) hoping it will come good and I’m still waiting as the stock continues its slide, falling more than 21% in the last year. Yet I don’t see anything seriously wrong with Aviva, which has weathered the impact of Chancellor George Osborne’s pension freedom reforms on annuity sales, and speedily integrated recent acquisition Friends Life. Forecast earnings per share (EPS) growth of 108% this year (following last year’s 56% drop) also show promise, with another 10% EPS growth forecast for 2017.
The dividend has also recovered from its savaging three years ago and is on a forecast yield of 5.6% by the end of this year. Its balance sheet is one of the strongest in the sector, and chief executive Mark Wilson has made progress in crafting a tighter ship. Aviva sets sail full of hope but continues to flounder. Stormy stock market seas are one reason. Or maybe investors are reluctant to buy at today’s surprisingly pricey valuation of 18.8 times earnings.
Barclays
Investors in Barclays (LSE: BARC) have had an even harder time of it, with the stock falling 35% in the past 12 months. UK banks seem to be exposed to every global risk, with panic in the European banking sector causing disarray over here. Barclays, naturally, has problems of its own making as well, with the 18% rise in Q1 core pre-tax profits to £18.6bn marred by rising losses from running down non-core operations. This reduced Q1 pre-tax profits to £793m, down from £1,057m last year.
Investors who were shocked at the scale of the mess banks got themselves into before the financial crisis have been similarly surprised (and dismayed) by how long they’ve taken to sort themselves out. Mud sticks, especially toxic mud. Barclays still isn’t there yet, with another ÂŁ50bn of non-core disposals in the pipeline before chief executive Jes Staley can present investors with a cleaner, streamlined bank. Investors who can look beyond the current mess will be tempted by its valuation of 10.3 times earnings, and predicted EPS growth of 49% in 2017. It may take longer than that for the dividend to be restored to full health, however.
Hargreaves Lansdown
The UK’s largest independent financial adviser Hargreaves Lansdown (LSE: HL) is a super soaraway growth stock no more, falling 17% in the last six months. Its share price has nonetheless doubled in the last five years and this leaves it trading an expensive 37.65 times earnings. Forecast EPS growth of 13% in the year to 30 June 2017 offers some justification for this, as do operating margins of 50.1% and return on capital employed of 85%. Inevitably, given strong share price growth, the yield disappoints at 1.71%.
Hargreaves is effectively a geared play on global stock markets, and as markets struggle, its share price also faces an uphill battle. It certainly isn’t a buy, and given today’s market volatility and toppy valuation, it may even be time to take some profits.