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Value Gurus Are Buying These Stocks in Out-of-Favor Financials

- By Holly LaFon

Financials have fallen out of favor this year as the S&P 500 extends gains and almost every other market sector rose higher.

Stocks of the financial industry have gained 1.74% year to date, beating only downtrodden health care, which rose 0.02%, according to Fidelity. The market continues to love energy (up 17.77%) and information technology stocks (up 11.76%) the most, while every other sector remains in positive territory and the S&P 500 index has grown 5.86%.


Some value mutual fund managers have flocked to the sector the market forgot, such as Nygren of the Oakmark Fund, who has 35% of his portfolio in financial services, representing his largest sector as of the third quarter. Marty Whitman of Third Avenue also gave it the most space at 28.5% of his portfolio, and Wally Weitz has made it his second largest at 20.3%, as of the second quarter.

The managers may have recognized the call of valuation instead of macro factors and negative news. The sector has a price-earnings ratio of 12.48, trailing 12-months EPS growth of 2.78% year over year and a dividend yield of 3.35%.

By comparison, the market's second-favorite sector, fast-growing information technology, has a P/E ratio of 27.94, EPS growth of 20.5% and dividend yield of 2.12%

Based on a screen of 154 portfolios, the S&P 500 financial services stocks the most managers purchased over the past six months are: JPMorgan (JPM), American Express (AXP), Bank of America (BAC), Goldman Sachs (GS) and MasterCard (MA).

JPMorgan Chase & Co. was purchased by 16 gurus. It has a market cap of $246.73 billion, P/E of 11.55 and five-year EPS growth rate of 7.1%. JPMorgan's stock price rose 3.47% year to date and closed at $68.31 Tuesday.

American Express Co. was purchased by 15 gurus. It has a market cap of $56.22 billion, P/E of 10.69 and five-year EPS growth rate of 9.6%. American Express' stock price fell 12.51% year to date and closed at $60.86.

Bank of America Corp. was purchased by 15 gurus. It has a market cap of $164.4 billion, P/E ratio of 13.41 and five-year EPS growth rate of zero. Bank of America's stock price fell 4.16% year to date and closed at $16.11.

Goldman Sachs Group Inc. was purchased by 15 gurus. It has a market cap of $68.54 billion, P/E ratio of 15.91 and five-year EPS growth rate of 11.10%. Goldman Sachs' stock price fell 6.21% year to date and closed at $169.04.

MasterCard Inc. was purchased by 15 gurus. It has a market cap of $111.26 billion, P/E ratio of 30.19 and five-year EPS growth rate of 21.2%.

Find more financials purchased by gurus in the S&P500 Screener here. Start a free 7-day trial of Premium Membership to GuruFocus.

This article first appeared on GuruFocus.