As all investors are all too aware, it is difficult to find a sector that appeals to everyone. For example, while the technology sector may have astounding growth potential, it tends to lack income prospects and can sometimes be viewed as rather overpriced. Similarly, utilities and bank stocks may offer handsome yields, but their valuations and growth prospects can be somewhat disappointing.
However, the financial services sector seems to offer a potent mix of companies that offer great yields, impressive bottom line growth prospects, and which trade at fair prices. As such, it is a sector that should be of interest to Foolish investors.
Growth at a reasonable price
While wealth management company, AMP Limited (ASX: AMP), may trade at a premium to the wider index, its growth prospects appear to make it well worth such a high price. For example, AMP has a price to earnings (P/E) ratio of 18.6 versus 16.7 for the ASX, but when its earnings growth rate of 44% over the next two years is taken into account, it equates to an appealing price to earnings growth (PEG) ratio of just 0.93.
Similarly, insurance company, QBE Insurance Group Ltd (ASX: QBE), is set to be a somewhat surprisingly strong growth play, with its bottom line due to rise by 62% over the next two years. This puts it on a PEG ratio of only 0.68, which is considerably lower than the ASX's PEG ratio of 1.43.
Volatility
Despite such strong growth potential, QBE offers a relatively less volatile shareholder experience. For example, it has a beta of just 0.56 and this indicates that for every 1% change in the level of the wider index, QBE's share price should move by just 0.56%. And, with the outlook for the ASX being somewhat uncertain, this could be an attribute worth having. In fact, it's a similar story for QBE's sector peer, Insurance Australia Group Ltd (ASX: IAG), which has a beta of just 0.6.
Income Prospects
As well as a low beta, IAG also offers a superb dividend, with it currently yielding 6.6% (fully franked). The key reason for such a high yield has been astounding profit growth during the last five years, which has allowed IAG to increase shareholder payouts at an annualised rate of 31.3% during the period. And, with dividends being covered 1.3 times by profit, they appear to be highly sustainable despite their sharp rise in recent years.
Rerating
Furthermore, IAG continues to trade at a discount to the wider index, with it having a P/E ratio of just 13.1. As such, an upward rerating could be on the cards after disappointing share price performance that has seen IAG's share price fall by 13% since the turn of the year.
