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While the financial sector hasn’t performed as expected this year amid rising interest rates, select financial companies have been outperforming the market. A slew of Q2 earnings reports were released in just the past few days from the megabanks with mixed results. Companies like Citigroup showed strength in the quarterly results, while others such as JPMorgan Chase were hit harder as the recent economic uncertainty hindered progress.
But the stocks of these megabanks haven’t been the place to be this year. We need to dig deeper within the financial sector to find that diamond in the rough that is not only weathering the volatility, but flourishing and making new highs.
Employing a top-down approach, our Zacks Finance sector is ranked in the top 38% out of all Zacks Ranked Sectors. This sector has mainly performed in line with the market, showing only slight outperformance. However, note the favorable valuation characteristics below:
Image Source: Zacks Investment Research
Within the Finance sector, the Zacks Banks – West industry is currently ranked in the top 14% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Quantitative research studies have shown that roughly half of a stock’s future price movement can be attributed to its industry group. By focusing on stocks within the top industries, we can provide a constant ‘tailwind’ to our investing results. Note this group is also relatively undervalued. In addition, the industry shows above-average historical earnings growth, net margin, and sales growth:
Image Source: Zacks Investment Research
Let’s examine a leading stock within this powerful sector and industry combination.
CVB Financial operates as a bank holding company for Citizens Business Bank, a state-chartered bank that provides financial services to businesses and individuals. The company offers checking, savings, money market, and time certificates of deposit products. CVBF also offers commercial lending and consumer financing products such as lines of credit and home mortgages. In addition, through its CitizensTrust Division, CVBF provides investment accounts, 401(k) plans, annuities, and mutual funds. CVB Financial was founded in 1974 and is based in Ontario, CA.
CVBF has exceeded earnings estimates in each of the past four quarters, delivering an average 5.19% earnings surprise over that timeframe. The bank holding company most recently posted Q1 EPS back in April of $0.31/share, a 3.33% surprise over consensus estimates. The stock is outpacing the market, returning north of 16% this year alone.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With an Earnings ESP +5.82% and a Zacks Rank #2 (Buy) rating, another earnings beat may be in the cards for CVBF investors when the company reports Q2 results later this week on July 20th.
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Searching for a Financial Stock? Look No Further
While the financial sector hasn’t performed as expected this year amid rising interest rates, select financial companies have been outperforming the market. A slew of Q2 earnings reports were released in just the past few days from the megabanks with mixed results. Companies like Citigroup showed strength in the quarterly results, while others such as JPMorgan Chase were hit harder as the recent economic uncertainty hindered progress.
But the stocks of these megabanks haven’t been the place to be this year. We need to dig deeper within the financial sector to find that diamond in the rough that is not only weathering the volatility, but flourishing and making new highs.
Employing a top-down approach, our Zacks Finance sector is ranked in the top 38% out of all Zacks Ranked Sectors. This sector has mainly performed in line with the market, showing only slight outperformance. However, note the favorable valuation characteristics below:
Image Source: Zacks Investment Research
Within the Finance sector, the Zacks Banks – West industry is currently ranked in the top 14% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Quantitative research studies have shown that roughly half of a stock’s future price movement can be attributed to its industry group. By focusing on stocks within the top industries, we can provide a constant ‘tailwind’ to our investing results. Note this group is also relatively undervalued. In addition, the industry shows above-average historical earnings growth, net margin, and sales growth:
Image Source: Zacks Investment Research
Let’s examine a leading stock within this powerful sector and industry combination.
CVB Financial Corp. (CVBF - Free Report)
CVB Financial operates as a bank holding company for Citizens Business Bank, a state-chartered bank that provides financial services to businesses and individuals. The company offers checking, savings, money market, and time certificates of deposit products. CVBF also offers commercial lending and consumer financing products such as lines of credit and home mortgages. In addition, through its CitizensTrust Division, CVBF provides investment accounts, 401(k) plans, annuities, and mutual funds. CVB Financial was founded in 1974 and is based in Ontario, CA.
CVBF has exceeded earnings estimates in each of the past four quarters, delivering an average 5.19% earnings surprise over that timeframe. The bank holding company most recently posted Q1 EPS back in April of $0.31/share, a 3.33% surprise over consensus estimates. The stock is outpacing the market, returning north of 16% this year alone.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With an Earnings ESP +5.82% and a Zacks Rank #2 (Buy) rating, another earnings beat may be in the cards for CVBF investors when the company reports Q2 results later this week on July 20th.