2 cheap financial shares that could be bargain buys

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It’s been a difficult time for investors in financial shares with the sector down by over 4% in the last 30 days. But sentiment appears to have shifted positively recently with gains being seen across the sector.

I feel this could mean that now is a great time to invest in some quality financial shares listed on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

Two shares which I believe have the potential to provide investors with strong returns in the coming months following a less than fantastic start to 2016 are as follows:

Bendigo and Adelaide Bank Ltd (ASX: BEN)

The regional bank had lost almost a third of its value in 2016, before the recent rally in the banking sector reduced that to a 27% decline. Since the bank reported a 9% drop in its interest income in the first half of 2016, the market has been largely negative about its prospects.

But I believe the sell-off was overdone leaving the shares at a bargain price with a great dividend yield. The prospect of Bendigo and Adelaide Bank being awarded its advanced accreditation from APRA later this year is another reason I find the company to be an attractive investment. This should be a boost to earnings as it will allow the company to lend significantly more on the same level of capital it holds currently.

Priced at just 9x estimated FY 2016 earnings makes Bendigo and Adelaide Bank cheaper than even the embattled Australia and New Zealand Banking Group (ASX: ANZ). At this price I believe it will prove to be a good long-term buy for patient investors.

BT Investment Management Ltd (ASX: BTT)

BTIM is another company which has seen its share price make an alarming drop in 2016. Shareholders have had to watch on as the company lost almost 25% of its market value. Just like Bendigo and Adelaide Bank, I feel this has left the shares at a bit of a bargain price.

As two-thirds of its revenue is generated from its thriving UK operations, there will no doubt be many concerns over the ramifications of the Brexit vote in June. If the UK votes to leave the European Union there are fears that the British pound will depreciate substantially against many major currencies including the Australian dollar.

Additionally, there are further concerns that the City of London may lose its place as the financial capital of Europe. Both eventualities could potentially lead to BTIM’s UK-based funds seeing large withdrawals from its funds under management.

I believe if the UK votes to stay in the European Union we will see a rally in both the British pound and BTIM’s share price. It looks like it could be a close vote, but I have a sneaking suspicion they will remain in the EU. This would make BTIM a tempting buy today.

If you’re still looking for even more ideas to get your portfolio outperforming the market then look no further than these three blue chips which could be about to soar. The best thing about them, is they all pay fantastic dividends too.

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Motley Fool contributor James Mickleboro 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.

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