Stocks pairs trading: BEN vs PFG
When evaluating the investment potential between Franklin Resources, Inc. (BEN) and Principal Financial Group, Inc. (PFG) using a stock pairs strategy, several key metrics guide the decision to buy BEN and sell PFG.
Reasons to Consider Buying BEN:
Attractive Valuation and Growth Potential: BEN's forward P/E of 8.53 is notably lower than PFG's forward P/E of 9.28. This valuation suggests that BEN is relatively undervalued, especially considering its expected EPS growth next year of 14.49% compared to PFG's 11.05%. BEN’s EPS growth next year is anticipated at $2.91 compared to PFG's $8.45, which, when adjusted for the P/E ratios, offers a more attractive growth relative to valuation.
Market Performance and Dividend Yield: Despite recent underperformance in the short term (-5.67% over the past week and -7.63% over the month for BEN), it offers a higher dividend yield of 5.00% compared to PFG’s 3.62%. This higher yield may appeal to dividend-focused investors, especially in volatile markets.
Stable Insider Ownership: BEN has a substantial insider ownership at 45.78%, which often signals confidence in the company’s future by its management and major stakeholders. In contrast, PFG has significantly lower insider ownership at 0.65%.
Reasons to Consider Selling PFG:
Concerns Over High Valuation and Lower Growth Projections: Although PFG shows a lower forward P/E compared to its historical P/E (32.40), it is still higher than BEN's. Coupled with a lower projected EPS growth next year (11.05% for PFG vs. 14.49% for BEN), this suggests that PFG might be overvalued relative to its growth prospects.
Financial Performance and Profitability Indicators: PFG’s ROI and ROE are 4.15% and 5.96%, respectively, which are lower than one might prefer for robust financial health. BEN, with a higher ROE of 7.85% and positive insider buying trends, indicates potentially more robust financial health and confidence from those within the company.
Market Recovery and Operational Margins: PFG’s operational margin stands at 5.41%, significantly lower than BEN’s 18.06%. This indicates BEN's more efficient management of expenses relative to its revenue, a critical factor during economic uncertainty or market volatility.
Decision:
Buy 3 BEN: Given its lower valuation relative to growth, higher dividend yield, and stronger insider confidence, BEN emerges as a strategic buy. Its valuation and profitability metrics suggest it is undervalued, providing a favorable opportunity for investors looking for growth at a reasonable price.
Sell 1 PFG: Considering PFG’s relatively higher valuation with lower growth prospects and weaker profitability indicators, it might be prudent for investors to reconsider their positions in PFG. Selling PFG could allow reallocating investments towards more undervalued opportunities like BEN, which offers a better growth outlook and more attractive valuation.
Reasons to Consider Buying BEN:
Attractive Valuation and Growth Potential: BEN's forward P/E of 8.53 is notably lower than PFG's forward P/E of 9.28. This valuation suggests that BEN is relatively undervalued, especially considering its expected EPS growth next year of 14.49% compared to PFG's 11.05%. BEN’s EPS growth next year is anticipated at $2.91 compared to PFG's $8.45, which, when adjusted for the P/E ratios, offers a more attractive growth relative to valuation.
Market Performance and Dividend Yield: Despite recent underperformance in the short term (-5.67% over the past week and -7.63% over the month for BEN), it offers a higher dividend yield of 5.00% compared to PFG’s 3.62%. This higher yield may appeal to dividend-focused investors, especially in volatile markets.
Stable Insider Ownership: BEN has a substantial insider ownership at 45.78%, which often signals confidence in the company’s future by its management and major stakeholders. In contrast, PFG has significantly lower insider ownership at 0.65%.
Reasons to Consider Selling PFG:
Concerns Over High Valuation and Lower Growth Projections: Although PFG shows a lower forward P/E compared to its historical P/E (32.40), it is still higher than BEN's. Coupled with a lower projected EPS growth next year (11.05% for PFG vs. 14.49% for BEN), this suggests that PFG might be overvalued relative to its growth prospects.
Financial Performance and Profitability Indicators: PFG’s ROI and ROE are 4.15% and 5.96%, respectively, which are lower than one might prefer for robust financial health. BEN, with a higher ROE of 7.85% and positive insider buying trends, indicates potentially more robust financial health and confidence from those within the company.
Market Recovery and Operational Margins: PFG’s operational margin stands at 5.41%, significantly lower than BEN’s 18.06%. This indicates BEN's more efficient management of expenses relative to its revenue, a critical factor during economic uncertainty or market volatility.
Decision:
Buy 3 BEN: Given its lower valuation relative to growth, higher dividend yield, and stronger insider confidence, BEN emerges as a strategic buy. Its valuation and profitability metrics suggest it is undervalued, providing a favorable opportunity for investors looking for growth at a reasonable price.
Sell 1 PFG: Considering PFG’s relatively higher valuation with lower growth prospects and weaker profitability indicators, it might be prudent for investors to reconsider their positions in PFG. Selling PFG could allow reallocating investments towards more undervalued opportunities like BEN, which offers a better growth outlook and more attractive valuation.
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