Five Cheap Financial Stocks Hedge Funds Love

In December last year, the US Central Bank increased interest rates to 0.25%-0.5%. This was the first time the Fed had raised interest rates in the last decade. Theoretically, financial institutions should have benefited from this increase. However, as no further hikes have come so far this year, the financial sector has inched up just by 2.80% year-to-date.

Even though many stocks from the financial sector are trading at considerable prices, there are a bunch of stocks that can be considered overlooked, mainly due to the small market-cap and low share prices. However, hedge funds are keeping an eye on the entire sector and have piled into some financial stocks that are trading under $10 a share. In this article, we are going to discuss five of the most popular cheap financial stocks.

At Insider Monkey, we track around 740 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

MGIC Investment Corp. (NYSE:MTG) is engaged in the business of providing mortgage insurance and related services to lenders and government entities in USA. At the end of the second quarter, more than 30% of the company’s outstanding stock was held by 46 funds that we track, as compared to 37 a quarter earlier. The stock gained around 33% during the last three months, but is still over 10% in the red year-to-date and is trading at just 8 times forward earnings. The company reported solid results for the second quarter, with both earnings and EPS topping the estimates. Most analysts have positive ratings on the stock and the consensus price target stands at $9.80 per share, which implied an upside potential of 24%. In September, the company  delivered its August operating statistics, with insurance in force of $179.1 billion and and ending primary delinquent inventory 51,642 loans.

Regions Financial Corp (NYSE:RF)’s stock has returned more than 18% in the last six months, outperforming the S&P 500. Among the funds we track, 39 funds held $712.73 million worth of stock at the end of June, compared to 41 funds and $809.99 million, respectively, a quarter earlier. Regions Financial Corp (NYSE:RF) has a market cap of $12 billion and its stock sports a yield of 2.50%. Amid strong performance, Raymond James analyst David Long has recently downgraded the stock to ‘Outperform’ from ‘Strong Buy’ but maintained the $10.50 price target.

Huntington Bancshares Incorporated (NASDAQ:HBAN) provides banking, leasing and other financial products and services in USA. The stock had lost 20% in the first six months of 2016 and is 8% in the red year-to-date; it has a dividend yield of 2.75%. However, during the second quarter, the number of funds from our database holding shares surged by eight to 31, although the aggregate value of their positions slid by 33% to $220.78 million. For the third quarter, the company is expected to deliver an EPS of $0.21, representing an increase of 16.67% on the year, on revenue of $820 million. In August, the financial company has further strengthened its position in Ohio and Michigan by merging with FirstMerit Corp.

Among the funds we track, 29 held shares of Vereit Inc. (NYSE:VER) worth $801.13 million at the end of June, compared to 31 funds and $1.09 billion, respectively, a quarter earlier. The stock has gained 20% since the beginning of the year and sports a dividend yield of 5.78%. Under the leadership of CEO Glenn Rufrano, the REIT has been implementing its turnaround plan quite successfully and has been disposing some of its real estate asset this year in order to deleverage its balance sheet. In other news, its former CFO Brian Block was arrested last month and charged in connection with an accounting fraud that had led to the company’s value drop by $4.0 billion in 2014. 

WMIH Corp. (NASDAQ:WMIH) saw the number of funds holding long positions decline by four to 29 during the second quarter, while the total value of their holdings slid to $131.18 million from $150.30 million  and represented more than 28% of the company’s float at the end of June. WMIH Corp. (NASDAQ:WMIH). is a holding company engaged in the business of providing reinsurance services. The stock has come a long way after emerging from its bankruptcy in 2012d has returned more than 150% since then. However, since the beginning of 2016, the stock has lost 15%. Currently, WMIH is looking at acquisition opportunities across various industries as it had raised over $600 million from Citigroup and KKR & Co. for this purpose.

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