With the U.S. economy strong, many financial stocks trading at cheap valuations, and Federal Reserve Chair Janet Yellen recently stating that the case for higher interest rates has ‘strengthened’, many investors are actively looking to invest in financial stocks.
To aid those investors in their research, Insider Monkey has put together a list of some of the smart money’s favorite financial stocks, based on the numbers from the latest round of 13F filings. Without further ado, let’s take a closer look at Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and American International Group Inc (NYSE:AIG).
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
#5 American International Group Inc (NYSE:AIG)
– Number of Hedge Fund Holders (as of June 30): 85
– Total Value of Hedge Fund Holdings (as of June 30): $7.28 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 12.30%
Although the number of funds tracked by Insider Monkey with holdings in American International Group Inc (NYSE:AIG) fell by nine quarter-over-quarter to 85 at the end of June, many smart money investors believe AIG is one of the best stocks on the market today. Not only is AIG a wide-moat dominant insurance company that trades for a price-to-book ratio of just 0.74, but it also pays a 2.15% dividend yield at current prices. As interest rates normalize, so should AIG’s return on capital and profits. As AIG’s profits grow, so should its valuation and its quarterly dividend.
#4 Wells Fargo & Co (NYSE:WFC)
– Number of Hedge Fund Holders (as of June 30): 88
– Total Value of Hedge Fund Holdings (as of June 30): $28.44 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 11.80%
Even though it isn’t the cheapest bank in the sector, Wells Fargo & Co (NYSE:WFC)’s dividend ($0.38 per share every quarter, 3% dividend yield at current prices) is certainly among the most secure and long-term attractive. A bank would certainly have to be very safe and long-term competitive for Warren Buffett’s Berkshire Hathaway to own 479.7 million shares, which amassed 17.5% of its equity portfolio value. Wells Fargo is so attractive, in fact, that Warren Buffett recently petitioned the government to allow Berkshire to own more than 10% of Wells Fargo (Buffett’s ownership percentage of Wells Fargo has increased over time due to Wells Fargo’s buybacks).