3 Dirt-Cheap Financial Stocks To Buy Now

The financial sector is cheap in general, but these three companies are too cheap to pass up.

Mar 12, 2014 at 11:00AM

The financial sector is cheap in general right now, and has been for quite some time, but what are the best bargains of the sector? I like stocks that trade for below their tangible book value, because this represents what a company's real assets are worth. If a company is trading for below its TBV and has lots of potential to grow and improve in the future, or has potential to improve the TBV itself, it's pretty hard to go wrong.

Citigroup (NYSE:C), MBIA Inc. (NYSE:MBI), and Hartford Financial Services (NYSE:HIG) are three of the best buys right now, taking into account current valuation and future growth potential:

C Price to Tangible Book Value Chart

C Price to Tangible Book Value data by YCharts

The best bargain of the big banks
Citigroup currently trades for just 91% of its tangible book value, which is very rare for one of the "big four" banks, even in the post-crisis economy. Since the recession ended, Citigroup has done a great job of improving its asset quality by winding down its "legacy assets" held in its Citi Holdings division. The company is actively adding healthy loans to its balance sheet, and is consistently reducing its credit-related losses. 


One major reason that Citigroup is still a bargain is the disappointing earnings release the company put out a few weeks ago. The company is also still seen as a risk, and while the asset quality has gotten better, there is still a significant amount of junk on the balance sheet. Also, with the erratic interest rates of the latter half of 2013, the company's fixed-income trading division didn't do very well. 

Citigroup has already done an excellent job of growing its tangible book value since the crisis, and it should continue to grow for the foreseeable future, as the company winds down its bad assets and grows its portfolio of good loans. In fact, since 2010, Citigroup has grown its TBV from below $40 to about $54.40 currently, which translates to 8% annualized growth.

In other words, even if Citigroup continues to trade at its ridiculously low P/TBV ratio, shareholders are likely to see pretty impressive returns. An 8% annual gain in TBV alone gives us a conservative 2-year price target of roughly $56.

Insurance for bankers
MBIA provides guarantee insurance and related services for finance markets. The company has almost $450 billion in insurance in force, including public debt obligations such as municipal bonds and utility bonds, as well as other forms of debt, such as collateralized debt obligations (CDOs) and mortgage-backed securities.

Given the nature of MBIA's business, it is no surprised that the company got absolutely crushed by the financial crisis. After the collapse in the mortgage market caused a couple of years of heavy losses, MBIA lost its top-tier financial strength rating, and is currently rated a "C" by S&P.

There is still pending litigation, and the possibility that the company will need to raise more capital and dilute current shareholders, but I believe that MBIA is improving and will handsomely reward shareholders who stick with the company.

MBIA has historically traded for a pretty low valuation, as you can see on the chart below, as its business has been considered to be pretty risky. Even though I believe that MBIA is worth a lot more than the 88.5% of TBV that it currently trades for, the company's assets have improved (and continue to improve) at a very good rate. 

Since falling to around $8 per share in early 2010, MBIA's tangible book has more than doubled. The company hasn't gotten much new business, but it has eliminated a lot of its bad business, and will continue to do so. MBIA may be the riskiest company mentioned on here, but the possibility of doubling in value in four years may be worth it!

The best deal in property insurance
Hartford Financial Services is one of the leading property-casualty insurance companies in the world, with approximately $300 billion in assets. Since performing poorly in the wake of the financial crisis, Hartford has restructured its operations significantly and is now focusing on its property-casualty, group benefits, and mutual fund businesses, and discontinued some risky ones.

These moves by the company as well as the improving U.S. economy make Hartford worth much more than the 87.5% of tangible book value it currently trades for. There is some ongoing execution risk here, which could keep the valuation low, but the improving economy means rising insurance premiums in the company's core property-casualty business, which means a higher intrinsic value.

Hartford has more than doubled in TBV per share since the financial crisis, and the company will only become more valuable as time goes on due to the renewed focus on the core businesses.

I like all three of these companies for different reasons, and this is by no means an exhaustive list of good companies trading for less than tangible book.

Even if the sector stays as "cheap" as it is and these three companies' P/TBV ratios stay the same, these companies are becoming more and more valuable as their assets improve, and so will their shares.  Any increase in valuation will just be a bonus.

The future of banking is here!
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers