With the FTSE 100 having fallen by over 1,000 points in the last four months, there are a number of good value opportunities on offer for long term investors. One industry that contains several excellent prospects is financial services, with both the banking and asset management spaces offering growth at a very reasonable price and excellent income potential, too.
Of course, banks are very much dependent upon the performance of the economy and, with the UK economy performing particularly well at the present time on both an absolute and relative basis, Lloyds (LSE: LLOY) seems to be a strong choice for purchase. It is set to benefit from continued low interest rates in the UK, with the Bank of England unlikely to be anything but accommodative regarding monetary policy over the medium to long term. As a result, its bottom line should gain a boost from continued high demand for new loans, as well as a potentially lower default rate on existing loans as the UK economy continues to move from strength to strength.
In addition, Lloyds trades on a very low valuation. For example, it has a price to earnings growth (PEG) ratio of just 1.6, and this indicates that its shares could move considerably higher. And, while many of its banking peers are continuing to undergo major changes in their strategy and are the subject of major reorganisations (or look likely to be in the coming months), Lloyds has stuck with the same management team and strategy in recent years, which provides the bank’s investors with considerable stability and confidence regarding its future prospects.
As well as banks, wealth managers seem to be worth buying at the present time. Clearly, they are something of a ‘play’ on the wider index, with their shares closely mirroring the performance of the FTSE 100 in the long run. That’s because their level of fees is highly dependent upon the level of the stock market and, with the FTSE 100 having the potential to rise significantly over the long run, there is a real opportunity to benefit via wealth managers such as Aberdeen Asset Management (LSE: ADN) and St. James’s Place (LSE: STJ).
In the case of Aberdeen, its income potential is superb. For example, it currently yields a whopping 6.4% and, while its bottom line is due to fall by 5% in the current year and by a further 2% next year, its dividends remain very well-covered by profit at 1.6 times. Furthermore, Aberdeen trades on a price to earnings (P/E) ratio of just 10.1, which indicates that there is considerable upside potential on offer.
Meanwhile, St. James’s Place is expected to post very strong earnings growth in 2016, with its bottom line forecast to rise by around 32%. And, despite its shares having risen by 233% in the last five years, St. James’s Place trades on a price to earnings growth (PEG) ratio of just 0.7 at the present time. This indicates that its shares could move considerably higher – especially since they remain a relatively appealing income play due to them having a yield of 3.3%.
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Peter Stephens owns shares of Aberdeen Asset Management and Lloyds Banking Group. The Motley Fool UK has recommended Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.