In this article, we will take a look at 11 of the best financial services stocks to buy now.
Financial services stocks provide many different services to their customers including banking, mortgages, insurance, and more. Traditional banks typically accept deposits and make loans while more diversified banks also trade securities and manage assets. Insurers insure against certain risks by charging premiums.
The best financial service stocks often have scale to allow them to realize higher margins and also competitive advantages so they can maintain their market share more easily.
Like the shares of leading companies of many other sectors, the shares of leading companies in the financial services sector have experienced substantial headwinds in 2022.
Due to inflation rising substantially this year, the Federal Reserve has hiked interest rates 5 times. With inflation still remaining high, many investors think the Federal Reserve could increase interest rates further.
According to San Francisco Fed President Mary Daly, the latest core inflation reading on October 14 showed that, “It does show the data not cooperating.. It was a very disappointing report, but I would offer it wasn’t that surprising. We would hope that inflation would start to come down faster, but I was prepared for it to just be sluggish.”
If interest rates continue to rise, many businesses could find it harder to earn profits as easily. Meanwhile valuations could also decrease.
As a result, the S&P 500 has fallen 25% year to date and the NASDAQ has fallen around 35% year to date.
Given the market uncertainty, it could be a good idea for long term investors to hold a diversified portfolio across many different sectors. In terms of the financial services sector, here are some stocks that could be good long term investments.
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Methodology
For this list, we picked 11 leading financial stocks that offered banking, insurance, or other financial services. We then ranked them from #11 to #1 based on the number of hedge fund holders in our database that held shares of the same stock at the end of Q2 2022.
11 Best Financial Services Stocks to Buy Now
11. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 58
Morgan Stanley (NYSE:MS) is a leading Wall Street investment bank that provides capital market services. Due to the market weakness, Morgan Stanley shares are down 23% year to date and on October 14, the company reported Q3 EPS of $1.47 versus EPS of $1.98 in the same quarter of last year due to headwinds. Morgan Stanley CEO James Gorman commented on the performance saying it was “resilient and balanced in an uncertain and difficult environment.”
While Morgan Stanley has downside if the market continues to fall, the stock is still attractive in terms of long term opportunity if it earns the earnings that analysts expect.
Of the 895 hedge funds in our database, 58 owned shares of Morgan Stanley at the end of Q2 2022, ranking it #11 on our list of 11 Best Financial Services Stocks to Buy Now.
Alongside Berkshire Hathaway Inc. (NYSE:BRK-B), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V), Morgan Stanley is a leading financial services stock held by many hedge funds in our database at the end of Q2 2022.
10. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 67
American Express Company (NYSE:AXP) is a leading financial services company that provides charge and credit payment card products and also other services. Shares of the American Express Company have fallen 16% year to date, which is better than the S&P 500’s decline of around 25% year to date. Nevertheless, Arren Cyganovich of Citi downgraded the stock to ‘Sell’ from ‘Neutral’ on 10/13. Cyganovich set a $130 price target citing the potential for lower billed business.
In the long term, American Express Company has competitive advantages that could make it attractive if it earns the EPS that analysts expect.
67 hedge funds we track owned shares of American Express Company at the end of the second quarter.
9. Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 69
Goldman Sachs Group, Inc. (NYSE:GS) is a leading Wall Street investment bank that provides capital market services. Due to the market weakness, shares of Goldman Sachs Group, Inc. are down 21.6% year to date and trade for a forward P/E ratio of 7.92. Goldman Sachs Group, Inc. shares also have a dividend yield of 3.33% as of 10/15. If the headwinds facing the economy are stronger than expected, Goldman Sachs Group, Inc.’s near term earnings could be lower than what the analysts are expecting.
Nevertheless, Goldman Sachs Group, Inc.’s long term earnings potential is still attractive.
69 hedge funds in our database were long Goldman Sachs Group, Inc. at the end of Q2 2022, ranking it #9 on our list of 11 Best Financial Services Stocks to Buy Now.
8. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 82
Citigroup Inc. (NYSE:C) is a leading bank that provides consumer and corporate financial services. On 10/14, Citi reported EPS of $1.63 versus the consensus of $1.42. Nevertheless, there could be a recession in 2023 which could affect Citigroup Inc.’s future earnings. In the long term, Citigroup Inc. has substantial scale and market share that’s attractive.
82 hedge funds in our database were long Citigroup Inc. at the end of the second quarter, ranking it #8 on our list of 11 Best Financial Services Stocks to Buy Now.
7. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 83
Wells Fargo & Company is a leading bank that offers financial services such as bank accounts, loans, mortgages, investing, and credit card services. Although shares of Wells Fargo & Company are only down 10% year to date and trade for a forward P/E ratio of 8.56, the bank also faces headwinds if the U.S. economy enters into a recession. On 10/14, Wells Fargo & Company reported third quarter EPS of $0.85 versus the consensus of $1.09. Wells Fargo & Company has benefited from higher net interest income due to rising rates but it could also have more write offs in the future if the economy enters into a recession.
Like the other 3 major banks in the U.S., Wells Fargo & Company is attractive long term due to its market share and scale.
83 hedge funds we track owned shares of Wells Fargo & Company at the end of Q2 2022.
6. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 84
S&P Global Inc. provides credit rating, benchmarks, analytics and other financial services. The company operates divisions such as S&P Global Ratings, S&P Dow Jones Indices, S&P Global Commodity Insights and more.
On 10/13, Andrew Steinerman of JPMorgan lowered his price target on S&P Global Inc. to $390 from $410 and kept an ‘Overweight’ rating citing an ‘inhospitable market’ for many debt issuers in the near term.
In the long term, however, S&P Global Inc. is attractive as the issuance will likely rebound in the future and demand for S&P Global Inc. could rise.
84 hedge funds in our database were long S&P Global Inc. at the end of the second quarter.
Like S&P Global Inc., Berkshire Hathaway Inc., Mastercard Incorporated, and Visa Inc. are leading financial services stocks that many hedge funds in our database held at the end of Q2 2022.
5. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Bank of America Corporation (NYSE:BAC) is a leading U.S. bank that provides consumer and corporate banking. On 10/11, Vivek Juneja of JPMorgan cut his price target on Bank of America to $35.50 from $40.50 but kept an ‘Overweight’ rating. Although Bank of America Corporation has benefited from the rising interest rates with higher net interest income, the rate of the rise could cause a recession which might not be good for Bank of America’s future earnings per share in the next year.
In the long term, Bank of America Corporation is still attractive given its market share and scale.
99 hedge funds in our database were long Bank of America Corporation at the end of the second quarter.
4. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 104
JPMorgan Chase & Co. is a leading U.S. bank that provides consumer and corporate banking. On October 14, JPMorgan Chase & Co. reported third quarter EPS of $3.12 versus the consensus of $2.88. While earnings have been strong, JPMorgan Chase & Co. is facing headwinds that could increase if there is a recession next year. JPMorgan Chase & Co. is attractive in the long term given its competitive advantages and scale.
104 hedge funds in our database were long JPMorgan Chase & Co. at the end of Q2 2022.
Vltava Fund said the following about JPMorgan Chase & Co. in its Q3 2022 investor letter,
“We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term. JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008. A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability
3. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 109
Berkshire Hathaway Inc. is a holding company that owns a diverse set of businesses that include insurance companies. Due to the market weakness, Berkshire Hathaway Inc. shares are down 8.8% year to date and the company also faces headwinds if the economy slows next year. If market prices decline due to a recession, the value of many of Berkshire Hathaway Inc.’s businesses could decline too at least in the near term. Nevertheless, Berkshire Hathaway Inc. is attractive in the long term given the competitive advantages of many of its businesses.
109 hedge funds in our database were long Berkshire Hathaway Inc. at the end of Q2 2022.
2. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 137
Mastercard Incorporated is a payments technology company that provides transaction processing and other payment related products and services in the United States and internationally. On 10/13, Bryan Keane of Deutsche Bank cut his price target to $375 from $440 and kept a ‘Buy’ rating on shares citing worsening currency headwinds. If the economy worsens, Mastercard Incorporated could find it more difficult to earn the profits that analysts expect.
Nevertheless, Mastercard Incorporated is still attractive long term given its scale and normalized earnings per share potential.
137 hedge funds we track were long Mastercard Incorporated at the end of the second quarter.
1. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 166
Visa Inc. is a leading payments technology company. On 10/13, Bryan Keane of Deutsche Bank cut his price target to $260 from $270 on Visa Inc. but kept a ‘Buy’ rating. Keane notes the worsening currency headwinds due to the strong dollar as well as higher international expenses due to the rising interest rates. In the long term, Visa Inc. is attractive given the growing global economy and Visa Inc.’s market share.
166 hedge funds in our database owned shares of Visa Inc. at the end of Q2 2022, ranking it #1 on our list of 11 Best Financial Services Stocks to Buy Now.
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This article is originally published at Insider Monkey.
