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Are these 2 stocks the best way to play a pre-Christmas stock market rally?

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These are tough times for financial stocks as global markets continue to get roiled. Two FTSE 250 bankers have reported today and both have seen their share prices fall, despite issuing relatively upbeat statements. However, both look temptingly cheap and could cash in on any pre-Christmas Santa rally.

Close call

Merchant banking group Close Brothers Group (LSE: CBG) is down more than 3% today, while Investec (LSE: INVP) got off fairly lightly, dipping just 1.4%.

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Close Brothers reported a “solid start to the year” in its first-quarter statement and said it continues to perform well in current market conditions. Its banking division has been delivering growth and good returns, “reflecting the diversity of our loan portfolio and disciplined approach to lending.”

Oh Brothers

Its loan book increased 1.9% to £7.4bn, driven by strong growth in its commercial asset, invoice and specialist finance areas. Net interest margins are broadly in line with 2018, while impairment charges remain low.

The £2.2bn group’s Winterflood arm has remained resilient, despite more challenging market conditions, while Asset Management “achieved solid net inflows.” However, negative market movements resulted in a slight decline in managed assets, from £10.4bn to £10.2bn, and a decrease in total client assets, from £12.2bn to £11.9 since 31 July.

Bank on it

Management was happy with a solid performance as Close remains “well positioned for the remainder of the financial year”. Its share price is actually up 15% over the past 12 months, which displays some resilience, yet it trades at a bargain valuation of 10.7 times earnings. Investors also get a forecast yield of 4.2%, with cover of 2.2.

One worry is that five consecutive years of earnings per share (EPS) growth look set to flatten in the year to 31 July 2019. Yet my colleague GA Chester reckons he would still buy Close Brothers ahead of Lloyds Banking Group.

Money men

Investec delivered a sound operational performance” in the six months to 30 September, notwithstanding a challenging operating environment due to “rising US interest rates, the threat of trade wars, concerns over global growth prospects, weak economic growth in South Africa and Brexit-related uncertainty in the UK.”

Given those headwinds, its Asset Management and Wealth & Investment businesses have done well to grow funds under management, supported by strong net flows of £4.8bn. Investec’s Specialist Banking arm saw a substantial reduction in impairments, as well as revenue growth, supported by reasonable levels of client activity.

Profits up

Investec posted a 14.2% rise in operating profit to £359.3m, up 17.6% on a currency neutral basis (excluding the negative impact of the rand’s depreciation). However, its share price is just 15% higher than five years ago.

The group is now facing a drop-off in EPS growth after five years of growth, with a forecast 1% fall in the year to 31 March 2019, but then rebounding 7% the year after. However, a forecast yield of 5.2%, with cover of 2.1, looks tempting. Especially with the stock trading at a low forward valuation of just 9.3 times earnings. Rupert Hargreaves would buy and hold it for a decade. If you’re tired of the big bad banks, here are a couple of potential goodies.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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