The financial sector was  hit hard last year, thanks to the COVID-19 pandemic. The sector’s pain was due primarily to higher-than-anticipated default rates firms in the sector faced when unemployment skyrocketed and gross domestic product dipped. In addition, the Federal Reserve’s dovish monetary policy, in which it committed to keeping interest rates low for the foreseeable future, along with its unprecedented  asset purchases, hurt the sector significantly.

While the financial sector is not yet out of the woods, optimism has been climbing among investors that a quick economic recovery is in the offing due to an uptick in long-term interest rates, the strengthening U.S. dollar and an effective mass coronavirus vaccination drive. Also, as the economy reverts toward normalcy, the loan repayment capacity of customers is expected to improve. Hence, investors have been rotating into the financial space over the past few months.

Given the broad market’s incredible run over the past year, we believe it’s a good idea to bet on fundamentally sound companies that are trading at reasonable prices and have solid earnings growth potential. Nomura Holdings, Inc. (NMR), Community Bankers Trust Corporation (ESXB), OFS Capital Corporation (OFS), and U.S. Global Investors, Inc. (GROW) are four such financial stocks. They are currently trading below $10 and could offer attractive upside this year.

Nomura Holdings, Inc. (NMR)

NMR is a global financial services group with an integrated network that spans more than  30 countries and  provides various financial services to individuals, corporations, financial institutions, governments, and governmental agencies worldwide. The company operates through three business divisions – Retail, Asset Management and Wholesale (Global Markets and Investment Banking).

Last month,  NMR signed a memorandum of understanding to form an investment business limited partnership with Japan Search Fund Accelerator (JaSFA) that will invest in search funds and jointly conduct business operations. In addition, , NMR’s Asset Management Division recently unveiled plans  to launch three new ETFs that are designed to track the performance of the S&P 500 index, the S&P 500 in TTM Rates JPY Hedged Index, and the S&P 500 ESG Index, respectively. The first two ETFs will be managed at the lowest cost level in Japan, and the third will be the first ETF in Japan to track the S&P 500 ESG Index.

NRM’s fiscal third quarter (ended December 31, 2020) earnings impressed the market.  Its total revenues grew 20% year-over-year to $3.9 billion, driven by stronger revenues across all the three segments. Its Global Markets net revenue hit  a record high since as client flows were monetized amid the global equity market rally and weakening of the U.S. dollar. Its investment Banking net revenue hit its  highest level since March 2012, driven by Japan’s industrial realignment and business reorganizations, cross-border M&A deals and mandates for public offerings and secondary stock offerings mainly in Japan. Its net income was  $954 million, surging 72.3% versus  the year-ago quarter.

NMR has gained 62.7% over the past year to close Friday’s trading session at $6.23. In fact, the stock had hit its 52-week high of $6.36 during  the same week. NMR reported its strongest results in 19 years for the April to December period of 2020. The company’s management  recently issued an  outlook for its fiscal year 2021. NMR’s analysts forecast  aggregate sales growth of 8.5% year-over-year and recurring profit growth of 28.2% for companies in the Russell/Nomura Large Cap Index (ex-financials). In fact, NMR’s analysts forecast its  profits to grow for the first time in three years.

NMR’s POWR Ratings are consistent with this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

NMR has an A  grade  for Sentiment, and B for Growth and Stability. The stock is currently ranked #4 in the 15-stock Foreign Consumer Finance Industry.

In total, we rate NMR on eight different levels. Beyond what we stated above, we have also given NMR grades for Value, Momentum and Quality. Get all of NMR’s ratings here.

Community Bankers Trust Corporation (ESXB)

ESXB operates as the holding company for the Essex Bank, which  provides financial services primarily to individuals, small businesses, and commercial companies. The Bank engages in  general commercial banking  and delivers  a wide range of financial services primarily to individuals, small businesses and larger commercial companies. It operates through a network of 24 full-service offices, including 18 in Virginia, six  in Maryland, and two  loan production offices in Virginia.

ESXB  recently announced that the Bank’s Board of Directors has authorized a repurchase program of up to one  million shares of its common stock through February 2022. ESXB has  made a change in leadership roles earlier this month, appointing two new credit officers. The bank intends to leverage the combined banking experience of almost 75 years for both the executives and maintain strong credit quality through robust credit analytics and reporting.

In the fourth quarter, ended December 31, 2020, ESXB generated  net interest income of $14 million, improving 10% year-over-year. Its deposits grew $29.4 million during the quarter as total checking balances and savings accounts grew by $62.1 million. In comparison, its loans, excluding PCI loans, grew $4.7 million, or 0.4%, during the quarter. The bank recorded no provision for loan losses during the quarter. In fact, its nonperforming loans as on December 31, 2020 were t $3.5 million, $2.7 million lower than prior year. ESXB reported EPS of $0.24, rising 33% compared to the year-ago value of $0.18.

ESXB  recorded loan loss provisions during the first two quarters of 2020 that reflected the heightened risks associated with the pandemic. However, the bank’s net income rebounded meaningfully as economic conditions started improving in the last two quarters. As a result, the stock has gained 62.2% over the past six months to close Friday’s trading session at $8.44, after hitting its 52-week high of $8.64. ESXB delivered robust growth and an improvement in several key areas, including loan production, deposit mix, asset quality, and noninterest income, during the past year. Thus, Wall Street analysts expect ESXB’s current year revenue to further improve 4.3% year-over-year.

It’s no surprise that ESXB has an overall rating of B, which translates to Buy in our POWR Ratings system. ESXB has an A grade  for Stability, and B for Growth and Sentiment. It is ranked #3 in the 42-stock Mid-Atlantic Regional Banks industry.

In addition to the POWR Ratings grades I’ve just highlighted, one  can see the ESXB ratings for Value, Momentum and Quality here.

OFS Capital Corporation (OFS)

OFS is a business development company that specializes in direct and fund investments as well as add-on acquisitions. The company seeks to invest in companies with primarily debt investment and to a lesser extent through equity investments. OFS invests primarily in privately held middle-market companies in the United States, including lower-middle-market companies, targeting investments of $3 to $20 million in companies with enterprise values between $10 million and $500 million.

As on December 31, 2020, the number of portfolio companies in which  OFS has invested was  62. The total fair value of OFS’ investment portfolio was $442.3 million, approximately equal to 96% of its amortized costs. The fair value of its debt investment portfolio totaled $321.4 million in 49 portfolio companies, of which 95% were senior secured loans. The company held common and preferred equity investments and  debt investment in 10 portfolio companies and  equity investment in 13 portfolio companies.

In the fourth quarter (ended December 31, 2020), OFS reported total investment income of $11.14 million, growing 6.1% sequentially. During the quarter, the company closed a $5.2 million senior secured debt investment in a new portfolio company. In addition, OFS made $23.5 million of additional senior secured debt investments in existing portfolio companies and $19.9 million in four new structured finance notes. Its net asset value (NAV) per share increased to $11.85 from the quarter-ago value of $11.18, due to the portfolio’s unrealized appreciation.

The stock has surged 92.2% over the past six months to close Friday’s trading session at $8.90. In fact, the stock hit its 52-week high of $8.95 in the same week. Earlier this month, OFS declared a distribution of $0.20 per common share for the first quarter of 2021, implying an increase in its distribution for the second straight quarter. OFS plans to grow its net investment income over the coming years on the pace of increased originations and at the same time focus on capital preservation. Wall Street analysts expect the company’s EPS to increase at an average rate of 6.8% over the next five years.

OFS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. OFS also has a B grade  for both Growth and Sentiment. It is ranked #6 in the 39-stock B-rated Private Equity industry.

Click here to see the additional POWR Ratings for OFS (Value, Stability, Momentum and Quality).

U.S. Global Investors, Inc. (GROW)

Texas-based GROW is a publicly owned investment advisory firm that primarily provides its services to investment companies. The firm invests in public equity and fixed income markets around  the globe, and manages mutual funds, hedge funds, exchange traded funds, and other pooled investment vehicles. As of December 31, 2020, GROW had total assets under management (AUM) of $3.5 billion, compared to $560.5 million in the prior year, surging nearly $3 billion, or 530% year-over-year.

On December 30, 2020, GROW sold 10 million shares of HIVE Blockchain Technologies (HVBTF), the world’s first publicly-traded cryptocurrency mining firm. Though the firm locked in substantial gains through the disinvestment, it has reinvested the proceeds from the sale into HVBTF via a private placement of unsecured convertible debentures and common share purchase warrants.

In its fiscal second quarter (ended December 31, 2020), GROW witnessed a second straight period of strong revenue growth as total operating revenues surged 480% year-over-year to $5.17 million due to increased inflows into its flagship ETF the U.S. Global Jets ETF (JETS). In fact,  JETS’  AUM ended the quarter at $2.9 billion, rising more than 5,500% year-over-year. Its total investment income was  $20.7 million compared to an investment loss of $451,000 in the comparable period last year. GROW reported EPS of $1.10, versus the year-ago loss of $0.06 per share.

Inflows into JETS kept pace during the trailing two quarters. It  appears investors bet that COVID-19 vaccine distributions would help commercial air travel demand recover to pre-pandemic levels sooner rather than later. As a result, GROW’s management approved a 100% increase in the February monthly dividend, reflecting the company’s confidence in growing its revenues and cash flows, coupled with strategic investment in HVBTF. The stock has returned a whopping 639.5% over the past year to close Friday’s trading session at $7.07.

It’s no surprise that GROW has an overall rating of B which translates to Buy in our POWR Ratings system. GROW has a B grade for both Growth and Quality. It is ranked #9 of 59 stocks in the Asset Management industry.

In addition to the POWR Ratings grades I’ve just highlighted, you can see the GROW ratings for Value, Momentum, Stability and Sentiment here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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NMR shares were trading at $6.18 per share on Monday morning, down $0.05 (-0.80%). Year-to-date, NMR has gained 15.95%, versus a 4.90% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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