Broadpoint Securities Group (BPSG)

[madtony]

Three Bank Stocks With More Reward, Less Risk
10/19/09 - 05:12 AM EDT

BOSTON (TheStreet) -- Earnings reports last week from Bank of America(BAC Quote), Citigroup(C Quote) and JPMorgan(JPM Quote) revealed that the banks' main business -- lending -- was still saturated with risk.

Financial-services companies that don't deal in loans and mortgages have fared better. TheStreet.com's "Under the Radar" series has picked some lesser-known winners, including investment bank Stifel Financial(SF Quote), up 30% since our June 1 article, and Broadpoint Gleacher (BPSG Quote), up 38% since our Aug. 3 story.

Here are three overlooked financials due for a boost. Each receives a financial-strength score of 7 or higher, matching the "buy"-list average, but is cheaper than its peer group, offering investors more profit per dollar invested.

Pittsburgh-based Federated Investors(FII Quote) is an investment manager that sells mutual funds and separately managed accounts. The company has $402 billion in assets under management, making it one of the country's largest money managers.

Federated's second-quarter net income fell 9% to $53 million and earnings per share dropped 4% to 52 cents, cushioned by a lower share count. Revenue slipped 1% to $307 million. Federated's gross margin shrank from 32% to 30%, and its operating margin decreased from 30% to 29%.

Federated is 57% cheaper than asset-management peers based on trailing earnings and 22% cheaper based on projected earnings. The shares have rallied 53% this year, outpacing major U.S. indices. The stock pays a 3.6% dividend yield, with a safe payout ratio of 49%. Federated reports third-quarter results after the close of the stock market Oct. 22.

Knight Capital(NITE Quote) is a Jersey City, New Jersey-based capital-markets firm that specializes in thinly traded securities such as OTC Bulletin Board stocks. The company is enjoying steady improvement in trading volume, based on share volume and dollar value.

Its second-quarter net income grew 21% to $36 million, and earnings per share climbed 41% to 52 cents. Revenue surged 65% to $314 million. But Knight's gross margin fell from 34% to 29%, and its operating margin dropped from 31% to 26%.

Knight is 66% cheaper than brokerage peers based on trailing earnings and 24% cheaper based on projected earnings. The stock has rallied 38% this year, more than major U.S. indices. The company doesn't pay dividends. Knight reports third-quarter results before the stock market opens Oct. 21.
New York-based W.P. Carey(WPC Quote) is a real estate investment, management and advisory firm that deals mainly in commercial properties. It earns revenue as an adviser to affiliated real estate investment trusts, or REITs.

W.P. Carey's second-quarter net income dropped 25% to $15 million, and earnings per share declined 10% to 37 cents, cushioned by a lower share count. Revenue fell 5% to $55 million. Its gross margin narrowed from 75% to 70% and its operating margin shrank from 38% to 31%.

W.P. Carey is 51% cheaper than asset-management peers based on trailing earnings and 6% cheaper based on projected earnings. The shares have rallied 26% this year, more than the Dow and S&P 500 Index. W.P. Carey pays a 6.8% dividend yield, but has an unsafe payout ratio of 110%. The company reports third-quarter results before the stock market opens Nov. 5.

-- Reported by Jake Lynch in Boston.

http://www.thestreet.com/story/10612966/1/three-bank-stocks-with-more-reward-less-risk.html