As a rule, financial sector stocks generally aren't cheap on a raw share price basis. Sticker shock is not uncommon in this industry -- Berkshire Hathaway A-class stock is changing hands these days at over $266,000 per share.
While that's an egregious example, it can still be a pricey club. Fortunately for investors who don't have the budget for six-figure shares, there are some quality alternatives that cost much less. With that in mind, here are a pair of winners that can be bought for under $20.
With the economy still on an up cycle and key interest rate increases likely in the future, banking stocks have been popular lately. Over the past year, the KBW Nasdaq Bank index -- a benchmark for the segment -- has risen by nearly 43%, much better than the 14% and change of the S&P 500.
KBW constituent Huntington Bancshares (NASDAQ:HBAN) has more or less risen in concert with its index. Yet it hasn't flown as high as some of its regional and nationwide banking peers.
I believe it has excellent potential to catch up. After all, it notched a quarterly record for net profit in its Q2, with the bottom line coming in a robust 56% higher on a year-over-year basis at $272 million. That was derived from net interest income that rose by nearly 50%, and total revenue that was 37% better at $295 million.
Much of this growth was due to Huntington's splashy 2016 acquisition of fellow Ohio-based bank FirstMerit in a $3.4 billion cash-and-stock deal. Owning FirstMerit has made Huntington the largest bank in that state in terms of deposit market share. It also broadened its geographic reach to Wisconsin and Illinois.
Growth is in the cards for the bulked-up Huntington. Analysts are projecting a per-share profit of $0.92 this fiscal year, over 30% better than the 2016 result. The forward one-year P/E of just over 12 indicates that the stock is under-valued.
Additionally, Huntington has received permission from the Federal Reserve to lift its quarterly dividend later this year by 38% to $0.11 per share. This would yield a theoretical 3.3% on the current share price, which is quite generous for a banking stock. On average, analysts are estimating that the company will book a per-share profit of $0.26 in Q4, putting the new distribution's payout ratio at a manageable 42%.
Apple Hospitality REIT
Like Huntington Bancshares, high-end lodging real estate investment trust Apple Hospitality REIT (NYSE:APLE) is an underdog in its industry. Actually, the entire segment it belongs to -- hotel REITs -- has generally lagged behind other, more popular types of REITs in terms of share price growth.
It's a bit puzzling, as recent times have been comparatively pleasant for the hotel industry. Last year, average occupancy in the U.S. was 67.4%, which was the second-highest figure since 2000.
Apple Hospitality tops that. This is largely because it specializes in a highly specialized niche of the market known as "select service." To quote the neat definition from my Foolish colleague Matthew Frankel, these facilities "don't provide the extensive amenities and services offered by resorts and luxury hotels, but they also offer much more than no-frills bargain hotels."
With a portfolio comprised mostly of recently built hotels with a pair of trusted brand names -- Marriott and Hilton -- Apple Hospitality has managed to attract plenty of lodgers. Its occupancy rate of 74.4%, which was up slightly on a year-over-year basis, trounces that 2016 figure of 67.4% for the broader hotel industry.
Although "comparable" (i.e., exclusive of asset sales) revenue only rose incrementally in said quarter at just over $289 million, adjusted funds from operations -- the most critical profitability metric for REITs -- grew at an impressive 25% clip to almost $87 million.
To maintain its REIT status, Apple Hospitality is required to pay out at least 90% of its net income as shareholder dividends. Technically, with a per-share quarterly net profit of $0.15, it has a current payout ratio of 200%, but if we use the more appropriate AFFO figure, that ratio drops to 77% -- more than reasonable for a REIT. And that dividend is rich; it currently sports a juicy yield of 6.7%.