Don’t overlook the the financial sector as the stock market trends higher, according to Oakmark Funds portfolio manager and noted value investor BIll Nygren. The Dow Jones Industrial Average closed above 40,000 for the first time on Friday, while both the Nasdaq Composite and S & P 500 entered Monday after four-week-long rallies. After a dreary April, all three indexes are now higher in the second quarter. Despite the financial sector outperforming the broader market, banking and consumer finance stocks are cheaper compared to all S & P 500 companies, according to Nygren. The Financial Select Sector SPDR Fund (XLF) , which tracks the S & P 500 financials index, has returned 12.6% in 2024, including reinvested dividends, while the S & P 500 has returned less than 11.8%. “[W]e have just under 20% of our portfolio in banks and consumer finance companies, and they average about eight and a half times estimated earnings next year, relative to 20 something for the S & P,” Nygren told CNBC’s ” Squawk on the Street ” Friday. “I still think that’s really really cheap.” His portfolio’s top holdings include some of the country’s largest banks, such as Citigroup and Wells Fargo , as well as regional banks like First Citizens . Here’s a list of Nygren’s top holdings by portfolio weight. “[I]n the regulatory environment they’re in now, [banks] are holding significantly more capital that brings down [returns on equity] a little bit and investors have severely punished them for that,” Nygren said. “But we think what they haven’t done is offset that by saying these banks aren’t as risky as they used to be, because they have so much capital.”
