To say the share price performance of the big four banks over the past 12 months has been disappointing, would be a major understatement.
The reasons behind the falls are well known, and although there is the possibility that their share prices could rally in the short term (especially if the Reserve Bank cuts rates), many of the headwinds are still lingering over the banks. This means it is unlikely shareholders will see a significant recovery in share prices and unlikely that their share prices will returns to their previous 12-month highs anytime soon.
As a result, I believe it would be prudent for investors to consider other financial stocks with better growth outlooks including:
Magellan Financial Group Ltd (ASX: MFG)
Magellan is a leading international fund manager with a strong track record of delivering above average returns. The company today released its funds under management (FUM) for March which showed net inflows of $1.2 billion. This is a strong result and one shareholders would be happy with as Magellan had experienced mild levels of fund outflows in previous months. Importantly for prospective investors, the shares do not appear overvalued and offer an attractive level of upside especially if global markets can stabilise in the short term. Over the longer term, Magellan will benefit from Australian investors’ growing appetite for international equity exposure.
QBE Insurance Group Ltd (ASX: QBE)
The share price performance of QBE has been disappointing over the past 12 months but it has made significant progress to improve its operational performance. The company reported an improved cash profit in 2015 and some analysts are forecasting earnings per share growth of 27% over the next two years. While there are inherently more risks involved in insurance companies, investors looking for potentially higher returns shouldn’t look past QBE. The shares are currently trading on a forecast price-to-earnings ratio of around 12 and investors will benefit from a dividend yield that is expected to grow to around 6.2% over the next year.
Challenger Ltd (ASX: CGF)
Despite rising more than 18% over the past 12 months, shares of Challenger still appear attractively priced for investors who are prepared to remain patient. The company has an extremely powerful tailwind behind it in the form of an ageing population which is likely to drive consistent earnings growth over the medium to long term. This is especially the case for its annuities division as an increasing number of retirees seek stable income products as equity markets become more volatile. The shares are currently trading on an earnings multiple of 13x and a forecast dividend yield of 3.7%.
The three shares mentioned above may be more expensive and trading on lower dividend yields than the big four banks, but their earnings outlooks are far more positive. As a result, I would be inclined to consider these shares before investing in any of the big four banks at the moment.
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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.