4 Financial-Sector Stocks to Watch

Find out which UK bank has earned a space on Morningstar's list of favourite financial sector stocks

Stephen Ellis 2 January, 2014 | 10:58AM
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Long-time favourites such as Capital One Financial (COF) and Berkshire Hathaway (BRK.B) are reappearing on the list this quarter. However, we’re also adding insurer Aegon (AGN) and Lloyds Banking Group (LLOY). For Aegon, we think it is being treated more like a European insurer when it generates the majority of its profits within the United States and it has yet to receive substantial investor recognition for its turnaround efforts. We see potential in Lloyds as it moves beyond its legacy issues towards a brighter future in the cosy UK banking market.

Aegon

We believe that the market does not fully understand the company's operations, which is ultimately being reflected in its share price. While the firm generates more than 70% of its profits from its US-based Transamerica franchise (with the rest coming from the UK and the Netherlands), investors continue to treat it like it is a European heavy insurer with limited growth opportunities. The company has also received little recognition for its turnaround efforts in the aftermath of the financial crisis, which have involved de-risking its business and making a gradual shift towards a more fee-based revenue model. As such, Aegon has been trading at around 0.5 times book value, not much higher than the 0.4 times book value seen on average between 2009 and 2012, and well below the average price/book multiple of 1.2 times from 2003 to 2008.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Aegon NV4.06 EUR0.00Rating
Berkshire Hathaway Inc Class B281.38 USD0.00Rating
Capital One Financial Corp145.94 USD0.00Rating
ING Groep NV12.48 EUR0.00Rating
Lloyds Banking Group PLC46.28 GBP0.00Rating

About Author

Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.