The financial services sector has underperformed so far this year, with the Morningstar U.S. Financial Services Index returning 4%, compared to 18% for the S&P 500.
As of June 30, more than half of the financial services stocks that Morningstar covers traded below its fair value estimates. The most opportunities lie among credit services firms and banks, says Morningstar analyst Michael Wong.
Here are three major stocks the firm sees as undervalued.
Berkshire Hathaway
(BRK.B) – Get Free Report
Morningstar moat (durable competitive advantage) rating: wide. Morningstar fair value estimate: $370. Thursday’s closing price: $343.50.
“We believe that Berkshire, owing to its diversification and lower overall risk profile, offers one of the better risk-adjusted return profiles in the financial-services sector,” wrote Morningstar analyst Gregg Warren. And, “it remains a generally solid candidate for downside protection during market selloffs,” he said.
“We’re impressed by Berkshire’s ability in most years to generate high-single- to double-digit growth in book value per share, comfortably above our estimate of its cost of capital,” Warren said.
