Investors looking for good value stocks at the present time may wish to focus their attention on the financial services sector, which remains relatively unloved by the wider market. For example, despite remaining profitable throughout the credit crunch and requiring no government bailout, Barclays (LSE: BARC) continues to trade at a staggeringly low valuation.
In fact, Barclays has a forward price to earnings (P/E) ratio of only 8.9. For a global bank on a sound financial footing, this is incredibly low. Certainly, there is a degree of uncertainty surrounding the bank due to it having no CEO at the present time, but its Chairman and Board seem to be perfectly capable of running the bank in the interim period.
Furthermore, Barclays has huge income potential, with it currently paying out just 32% of profit as a dividend. While further retained capital may be required in order to bolster its capital ratios, the reality is that with the end of PPI claims now in sight Barclays is likely to increase its dividend at a rapid rate – especially since its bottom line is forecast to rise by 36% this year and by a further 19% next year. As such, it seems to be a superb buying opportunity for growth, value and income investors alike.
Similarly, challenger bank Shawbrook (LSE: SHAW) holds great promise for 2016 and beyond. It has established itself as a highly profitable business capable of shaking up the rather stale UK banking sector. And, with UK interest rates unlikely to rise quickly in the coming months and years (especially since we are still experiencing a deflationary period), the economic tailwind which is forecast to cause Shawbrook’s bottom line to rise by 39% this year and by a further 30% year is due to continue.
Despite this, the bank still trades on a price to earnings growth (PEG) ratio of just 0.3, which indicates that it offers growth at a very reasonable price. Certainly, dividends are rather disappointing, with Shawbrook due to yield just 1.2% next year, but continued profit growth is likely to mean that shareholder payouts soar over the medium to long term.
Meanwhile, interdealer broker Tullett Prebon (LSE: TLPR) has endured a challenging four year period, with its bottom line declining in each of these years by a total of 35%. As such, investor sentiment has been very poor, leading to a slump in its share price of 17% since October 2010.
Looking ahead, though, Tullett Prebon is expected to return to growth next year as the banking outlook continues to improve and, with its net profit set to rise in-line with the wider market, its rating of 9.9 seems to be unjustifiably low. Add to this a yield of 5% which is covered twice by profit and Tullett Prebon makes real sense as an investment – especially since dividends per share have increased or at least been maintained in each of the last five years. This shows that the company is relatively shareholder friendly and offers stable income prospects compared to a number of its index peers.
