In this article, we discuss the 5 Best Financial Services Stocks to Buy Now. If you want to read our detailed analysis of the finance sector, go directly to read 10 Best Financial Services Stocks to Buy Now.
5. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 72
In Q3, Bank of America Corporation (NYSE:BAC)’s organic customer growth momentum reached pre-pandemic levels as its deposit balances exceeded $1 trillion for the first time, presenting a 16% growth from the prior-year quarter. Due to the strong deposit growth and improving fundamentals, Bank of America Corporation (NYSE:BAC) remains one of the best financial services stocks to buy now.
Warren Buffett’s Berkshire Hathaway held a $42.8 billion worth of stake in Bank of America Corporation (NYSE:BAC) in Q3, becoming the company’s largest shareholder. Overall, 72 hedge funds in Insider Monkey’s database held stakes in the company in Q3, down from 87 in the previous quarter. The consolidated value of these stakes is over $46.4 billion.
Recently, Piper Sandler lifted its price target on Bank of America Corporation (NYSE:BAC) to $53, with an Overweight rating on the shares, highlighting the bank’s recent multiple expansions. As of the close of December 2, the stock’s year-to-date returns stood at 45.99%.
Oakmark Funds mentioned Bank of America Corporation (NYSE:BAC) in its Q3 2021 investor letter. Here is what the firm has to say:
“Earlier this year, one of our holdings, Bank of America, announced that it was raising its minimum hourly wage from $15 to $20 and would increase it to $25 by 2025. The company received great press for placing the well-being of its employees above profits. But was it really either/or? Bank of America’s chief human resources officer spoke to the bigger picture: “A core tenet of responsible growth is our commitment to being a great place to work…that includes providing strong pay and competitive benefits to help them and their families, so that we continue to attract and retain the best talent.” Bank of America understood that engaged, high-caliber employees are more productive, less prone to turnover and, therefore, less expensive in the long run. Increasing the pay for employees wasn’t elevating employees above shareholders; it was the right thing to do for employees and for shareholders.
If an increase to $20 was good, why stop there? Why not $50 per hour? Because the benefits the business receives at $50 don’t justify the expense. The bank would no longer be able to price its products competitively and would lose business. The employees would “win” in the short term, but eventually the lost business would lead to job cuts, meaning both employees and shareholders would lose. The negative effects of stakeholder overreach are no different than when CEOs overreach to inflate short-term profits. Both hurt shareholders and stakeholders.”
4. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 74
As per Insider Monkey’s data for Q3, the hedge fund interest is increasing in The Goldman Sachs Group, Inc. (NYSE:GS), as 74 hedge funds tracked by Insider Monkey were bullish on the financial services company, up from 61 in the previous quarter. The total value of these stakes is over $5.4 billion.
Recently, The Goldman Sachs Group, Inc. (NYSE:GS) announced the development of an Amazon-backed cloud computing service for investment firms, which will enhance the management services of the firm. Following the bank’s latest strategic developments, Wall Street analysts presented a positive outlook on the stock. Recently, both RBC Capital and Oppenheimer raised their price targets on The Goldman Sachs Group, Inc. (NYSE:GS) to $435 and $576, respectively.
In its Q3 results, The Goldman Sachs Group, Inc. (NYSE:GS) posted a GAAP EPS of $14.93, beating the estimates by $4.89. The bank’s revenue for the quarter stood at $13.6 billion, up 26.3% from the prior-year quarter.
Ariel Investments mentioned The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2021 investor letter. Here is what the firm has to say:
“Goldman Sachs Group Inc. (GS) returned +16.45%. Goldman has posted a series of excellent quarterly results. Merger and equity offering activity has been robust with trading profits bolstered by strong capital market volumes. Goldman’s asset management business has also performed well. Regulators recently moved to allow most large investment banks to return capital to shareholders through dividends and share repurchases. Fundamentally, we think Goldman Sachs is attractively priced at approximately 11 times earnings and a very reasonable multiple of book value.”
3. Willis Towers Watson Public Limited Company (NASDAQ:WLTW)
Number of Hedge Fund Holders: 75
Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is a British-American financial service and advisory company. Recently, Wells Fargo ensured its engagement in the company as it works to achieve its financial targets for 2024. The firm set a $280 price target on Willis Towers Watson Public Limited Company (NASDAQ:WLTW), with an Overweight rating on the shares.
At the end of Q3 2021, 75 hedge funds tracked by Insider Monkey held over $5 billion worth of stake in Willis Towers Watson Public Limited Company (NASDAQ:WLTW). In the previous quarter, 70 hedge funds had positions in the company, highlighting a positive hedge fund sentiment in Q3.
In Q3, Willis Towers Watson Public Limited Company (NASDAQ:WLTW) earned $2 billion in revenues, up 4% from the prior-year quarter. Moreover, the company’s income from operations was recorded at $1.1 billion, which stood at $66 million during the same period last year.
Vltava Funds mentioned Willis Towers Watson Public Limited Company (NASDAQ:WLTW) in its Q3 2021 investor letter. Here is what the firm has to say:
“The second position is much larger and was thrown into our hands by an unexpected turn of events. It is the stock of Willis Towers Watson. This is a British company with roots dating back to 1828. WLTW is the third-largest insurance broker in the world. This is a sector with which we are very familiar, as some time ago we held in our portfolio shares of its slightly larger competitor AON.
It was AON in fact that announced last spring it had agreed to merge with WLTW. In the merger, WLTW shareholders would have received AON shares. As is usually the case with such announcements, investors stepped in to conduct what is known as merger arbitrage. In this particular case, they bought WLTW shares and sold short AON shares in order to profit from the fact that the prices of the two stocks did not yet fully reflect the exchange ratio in the merger. Moreover, merger arbitrage commonly makes extensive use of leverage in order to increase profits.
This summer, however, AON and WLTW jointly announced that they were pulling out of the planned merger because they had not received approval from the US Department of Justice. The regulator had feared that in an already quite concentrated industry, a merger of the second- and third-largest players would restrict competition too much. The immediate reaction to this announcement was, of course, closing of positions from the merger arbitrage. This brought an immediate increase in the price of AON shares and decline in the price of WLTW shares. We saw this as an excellent buying opportunity in WLTW stock. (In addition, WLTW had received a USD 1 billion breakup fee from AON.) Because we knew the industry and the two companies well from earlier years, we were able to react immediately, and a new, very attractive investment appeared in Vltava Fund’s portfolio rather unexpectedly and quickly.
Insurance brokerage is a very good business. Simply put, insurance brokers are intermediaries who sell, find, or negotiate insurance on behalf of a client for a fee. They do not bear the insurance risk themselves and thereby do not risk their own capital. They live from commissions and the fact that this is a large and recurring business. Just to give you a sense of this, I will note, for example, that of the 500 companies in the Fortune Global 500 list, more than 90% are clients of WLTW. The entire industry is very concentrated and has relatively high barriers to entry. WLTW is the third-largest global player, has very high free cash flow, low capital investment requirements, and a very valuable client base. The business as a whole also provides some long-term inflation protection, as the speed at which the volume of total premiums grows follows the speed at which the economy and asset prices grow in nominal terms. I have to say we are very happy that circumstances have passed this investment on to us.”
2. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 88
According to Bloomberg, Wells Fargo & Company (NYSE:WFC) remains the best performing bank in 2021, surging 62.1%, as of the close of December 2. Due to its strong performance, Odeon Capital upgraded the stock to Buy, highlighting its reasonable valuation.
In its Q3 earnings, Wells Fargo & Company (NYSE:WFC) posted a GAAP EPS of $1.17, which beats the analysts’ estimates by $0.17. Moreover, the California-based financial services company reported revenue of $18.8 billion, exceeding expectations by $520 million.
At the end of Q3 2021, 88 hedge funds tracked by Insider Monkey reported owning stakes in Wells Fargo & Company (NYSE:WFC), compared with 94 in the previous quarter. These positions held a consolidated value of over $6.1 billion. Eagle Capital Management was the company’s leading shareholder in Q3, worth over $1.5 billion.
L1 Capital mentioned Wells Fargo & Company (NYSE:WFC) in its Q2 2021 investor letter. Here is what the firm has to say:
“Wells Fargo (Long +16%) was the strongest contributor to portfolio performance over the quarter. Wells Fargo shares rallied given a better outlook for bad debts driven by improving employment and house price trends. The company had been very undervalued due to excessive fears around likely bad debts due to the pandemic, the continued regulatory “asset cap” (a punishment that was put in place in 2017 for numerous compliance failures) and an inability to commence buybacks. The share price has subsequently recovered strongly in recent months as the company has progressed its turnaround program under the leadership of the well-regarded CEO, Charles Scharf (former CEO of Visa and BNY Mellon). Wells Fargo is now closer to getting the asset cap lifted and has announced a huge cost out program (US$8b+) as well as an $18b buyback program to be completed over the next 12 months. Wells Fargo shares have rallied more than 50% since we initiated the position in late 2020. Given the strong rally, we elected to exit our position and rotate into stocks with larger valuation upside.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 101
JPMorgan Chase & Co. (NYSE:JPM) remains one of the best financial services stocks to buy now as its Q3 results showed strong earnings capacity. In Q3, the company reported credit costs net benefit of $1.5 billion, beating the consensus of $17.9 million.
Recently, both Wells Fargo and Barclays raised their price targets on JPMorgan Chase & Co. (NYSE:JPM) to $210 and $193, respectively. Since the start of 2021, the stock delivered a 27.8% return to shareholders, while it gained 31.8% in the past year, as of the close of December 2.
The number of hedge funds tracked by Insider Monkey having stakes in JPMorgan Chase & Co. (NYSE:JPM) decreased to 101 in Q3, from 108 in the previous quarter. However, the total value of the stakes stood at $5.6 billion, up from $4.9 billion in Q2 2021. Fisher Asset Management was the largest shareholder of JPMorgan Chase & Co. (NYSE:JPM) in Q3, owning shares worth $1.1 billion.
Vltava Fund mentioned JPMorgan Chase & Co. (NYSE:JPM) in its Q3 2021 investor letter. Here is what the firm has to say:
“While all the previous names could be categorised as founder, continuing, or key shareholders, these last two names fall into the category of hired professional managers. This is actually the most numerous category among the bosses of large companies, but even among them there exist a number of individuals with exceptional long-term track records. In our view, these include also Jamie Dimon and Herman Gref.
We consider JP Morgan to be the strongest, largest, and most profitable bank in the world. It has not always been so, and the fact that it is what it is today can be attributed especially to its CEO Jamie Dimon. Dimon has spent his entire career in banking. He came to JP Morgan in a roundabout way in 2004 after the bank bought Bank One, of which he was CEO at the time. Since early 2006, Dimon has been CEO of the entire JP Morgan.
The quality and strength of JP Morgan under his leadership became fully apparent for the first time in 2008. Not only did JP Morgan help to stabilise the market by taking over the failing Bear Stearns in the spring of that year, but it was the only major US bank that did not require government assistance throughout the Great Financial Crisis and that was highly profitable even in the difficult year of 2008. Today, JP Morgan is even bigger, even more profitable, and even stronger than ever before. Many investors view banks with disdain, but a good bank with good management can be a very good long-term investment. From the time of its merger with Bank One in 2004 through the end of 2020, JP Morgan’s stock has outperformed even the S&P 500 index. The bank has earned a total net profit of USD 330 billion during this period, of which USD 232 billion has been paid out to shareholders in dividends and in share buybacks. I can recommend two books about Jamie Dimon: The House of Dimon and Last Man Standing.”
You can also take a look at 15 Best Financial Stocks to Buy Now and 10 Financial Services Dividend Stocks with Over 4% Yield
