Financial service stocks generally perform in-line with the economy, since these businesses offer services ranging from investment banking to consumer financing, which are in demand during prosperous economic times. Cherry Hill Mortgage Investment and Great Ajax are financial stocks on my list that are potentially undervalued. This means their current share prices are trading well-below what the companies are actually worth. There’s a few ways you can determine how much a financial company is actually worth. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. The discrepancy between the price and value means investors have an opportunity to buy shares at a discount. Below are the stocks I believe are undervalued on all criteria, based on their latest financial data.
Cherry Hill Mortgage Investment Corporation (NYSE:CHMI)
Cherry Hill Mortgage Investment Corporation, a residential real estate finance company, acquires, invests in, and manages residential mortgage assets in the United States. The company was established in 2012 and with the market cap of USD $228.34M, it falls under the small-cap group.
CHMI’s shares are currently floating at around -71% below its intrinsic value of $60.19, at a price of US$17.36, according to my discounted cash flow model. This mismatch indicates a chance to invest in CHMI at a discounted price. Also, CHMI’s PE ratio stands at around 4.36x while its Mortgage REITs peer level trades at, 10.39x meaning that relative to its comparable company group, you can purchase CHMI’s stock for a lower price right now. CHMI is also in good financial health, with short-term assets covering liabilities in the near future as well as in the long run. Interested in Cherry Hill Mortgage Investment? Find out more here.
Great Ajax Corp. (NYSE:AJX)
Great Ajax Corp. acquires, invests in, and manages a portfolio of residential mortgage and small balance commercial mortgage loans. Great Ajax was established in 2014 and with the market cap of USD $255.46M, it falls under the small-cap stocks category.
AJX’s shares are now hovering at around -18% less than its true level of $16.23, at a price tag of US$13.36, based on its expected future cash flows. This price and value mismatch indicates a potential opportunity to buy the stock at a low price. In terms of relative valuation, AJX’s PE ratio stands at 8.44x while its Mortgage REITs peer level trades at, 10.39x indicating that relative to its peers, we can buy AJX’s stock at a cheaper price today. AJX is also in great financial shape, as current assets can cover liabilities in the near term and over the long run. Interested in Great Ajax? Find out more here.
Manning & Napier, Inc. (NYSE:MN)
Manning & Napier, Inc. is publicly owned investment manager. Started in 1970, and run by CEO Jeffrey Coons, the company provides employment to 433 people and with the stock’s market cap sitting at USD $285.10M, it comes under the small-cap stocks category.
MN’s shares are currently floating at around -94% lower than its intrinsic value of $58.56, at a price of US$3.50, based on my discounted cash flow model. The discrepancy signals an opportunity to buy low. Moreover, MN’s PE ratio is around 14.1x compared to its Capital Markets peer level of, 15.57x indicating that relative to other stocks in the industry, we can purchase MN’s shares for cheaper. MN is also in great financial shape, with current assets covering liabilities in the near term and over the long run. MN has zero debt on its books as well, meaning it has no long term debt obligations to worry about. More detail on Manning & Napier here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.