In this article, we will discuss the 7 Most Undervalued Financial Stocks To Buy According to Analysts.
The financial industry outperformed the S&P 500, with the Dow Jones U.S. Financial Services Index returning more than 37% in 2024 compared to the S&P 500 index’s return rate of 25%. This growth undermines the mid-sized bank collapses in early 2024, which proved to be isolated events in the broader market.
Meanwhile, as we have pointed out in our article, 10 Best Financial Services Stocks To Buy According to Analysts, the financial services market has expanded notably in the last several years and is expected to grow at a CAGR of 7.2% between 2025 and 2029.
Financial Services Market Outlook
According to Fidelity’s report, the prospects for the financial industry in 2025 seem promising, backed by positive economic expansion in the U.S. The Fed’s rate reduction in the second half of 2024 will improve confidence and lower credit risk. This will ultimately boost lending and deposits while reducing net interest margins.
In 2025, financial services are going to be much more advanced, driven by AI. According to IBM’s 2024 report, Generative AI is revolutionizing financial services by enhancing customer satisfaction, bringing new features in risk management, and personalized financial solutions. Deloitte’s 2025 investment management outlook projects AI and the changing digital landscape to massively impact the investment management industry in 2025.
Whereas, Deloitte’s 2025 banking and capital markets outlook highlights that banks can reinforce their basis for sustainable growth as the banking industry adjusts to a low-growth, lower-rate scenario. Goldman Sachs projects a modest U.S. GDP growth of 2.5% in 2025, while the PCE inflation is expected to be around 2.1%.
The potential risks in the financial industry always exist. In case the economy weakens, some lenders can be exposed to commercial real estate risks and possible non-performing loans. Nevertheless, the new Trump era has started with a lot of optimism and more prospects for mergers and acquisitions ahead.
With that said, here is the list of 7 Most Undervalued Financial Stocks To Buy According to Analysts.
A view of a busy banking hall, customers engaging with banking staff to conduct their financial transactions.
Our Methodology
We shifted through the Finviz screener to identify stocks in the financial sector that had a forward P/E of less than 15 and a projected upside potential of over 30% based on analyst price targets, as of January 21. The 7 most undervalued financial stocks to buy are ranked in ascending order of analyst upside. These stocks are also popular among elite hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Most Undervalued Financial Stocks To Buy According To Analysts
7. Inter & Co, Inc. (NASDAQ:INTR)
Analyst Upside: 48.45%
Forward P/E: 8.64
Inter & Co, Inc. (NASDAQ:INTR) is a Brazilian company that operates as a digital multi-service bank. The company’s subsidiary Inter&Co Payments, is the pioneering financial super app offering services to more than 35 million customers across the Americas. Inter&Co’s primary offerings include financial services to individuals and companies such as loans, credits, cards, deposits, investments, and insurance.
The company is working on its 2027 plan to achieve 60 million customers. During Q3 2024, the company added 1.1 million new active users with a 46% increase in Total Payment Volume (TPV), reflecting strong transaction growth. The company has two more goals for 2027 including a 30% efficiency ratio and a 30% ROE target. In Q3, Inter & Co, Inc. reported a record-breaking ROE of 11.9%, indicating robust profitability improvement. Moreover, the company’s business accounts increased by 22% year-over-year, reaching BRL 320 billion in Q3.
On December 2, 2024, Citi analyst reiterated a Buy rating on Inter & Co, Inc. (NASDAQ:INTR) with a price target of $8 following a coverage transfer. Analysts expect the company’s diversification and insurance verticals to support rapid growth. The company’s hyper-personalization strategy and enhanced super app features are leading to higher conversion rates and sales.
6. Shinhan Financial Group Co., Ltd. (NYSE:SHG)
Analyst Upside: 50.10%
Forward P/E: 5.26
Shinhan Financial Group Co., Ltd. (NYSE:SHG) offers financial products and services in South Korea and globally. The company operates through six segments: Banking, Credit Card, Securities, Insurance, Credit, and Others.
The Korea-based banking firm is committed to returning value to shareholders. During Q3 2024, the company announced a dividend of KRW 541 per share and highlighted the share buyback plans of KRW 250 billion and KRW 150 billion for Q4 2024 and Q1 2025, respectively. However, the company incurred huge losses due to a trade-in cost between 200 Futures unrelated to the LP hedge, recognizing a loss of KRW 135.7 billion in Q3 2024. The company expects no further losses of such kind.
Shinhan Financial Group Co., Ltd. (NYSE:SHG) is improving its interest income, driven by growth in the banks and increased loans. In Q3 FY24, the company’s interest income increased by 1.2% from the previous quarter, driven by higher bank loans. The increase in real estate purchasing demand led to a 6.3% quarter-on-quarter growth in household loans in Q3.
Polaris Global Equity Strategy stated the following regarding Shinhan Financial Group Co., Ltd. (NYSE:SHG) in its Q3 2024 investor letter:
“On the backdrop of interest rate cuts, financials shined on expectations for loan demand and cheaper cost of capital; in fact, all sector holdings were in absolute positive territory. Shinhan Financial Group Co., Ltd. (NYSE:SHG) was the top contributor, with a second-quarter earnings beat on better non-interest income with credit costs under control. An enhanced shareholder return policy was a pleasant upside surprise, as Shinhan committed to returning 50% of earnings to investors through dividends and share buybacks by 2027.”
5. Burford Capital Limited (NYSE:BUR)
Analyst Upside: 52.79%
Forward P/E: 9.68
Burford Capital Limited (NYSE:BUR) offers legal finance products and services internationally. Burford operates through two segments including Capital Provision and Asset Management and Other Provision.
Burford Capital Limited’s (NYSE:BUR) track record is impressive, with a consistent history of delivering high returns on invested capital. In addition to that, Burford had generated $629 million of cash and securities, as of Q3 2024, driven by the case recoveries and settlements in FY23.
During the third quarter of 2024, the company’s net realized gains more than doubled, which led to significant cash during the quarter. The new commitments increased more than five times over the comparative period, indicating strong business activity.
The company is well-positioned to capitalize on the growing demand for litigation finance. As per the Global Disputes Forecast 2025 by Baker Mckenzie, cybersecurity and data privacy, AI, employment, commercial, tax, patent, and trade disputes hold the greatest risks for organizations. 85% of the correspondent organizations will increase their legal spending on disputes in 2025, while 90% of respondents cited litigation as a preferred mechanism to solve tax disputes.
Greenhaven Road Capital stated the following regarding Burford Capital Limited (NYSE:BUR) in its Q3 2024 investor letter:
“Burford Capital Limited (NYSE:BUR) – We have owned litigation financier Burford for less than two years, but the progress was not long in waiting. Substantial developments in their legal case against Argentina have occurred, with the potential proceeds being multiples of BUR’s current share price. The Argentina case is far from their only valuable asset and Burford also holds another $5B of cases in their portfolio that could be worth substantially more.”
4. Prudential plc (NYSE:PUK)
Analyst Upside: 62.61%
Forward P/E: 7.56
Prudential plc (NYSE:PUK) is a UK-based multinational insurance and asset management company. The company offers simple and accessible financial and health solutions to more than 18 million customers across 24 markets in Asia and Africa.
Lately, the company has been fully focused on its expansion strategy including its investments in Nigeria in September 2024. The company has agreed to acquire the remaining share of its joint venture in Nigeria, Prudential Zenith Life Insurance Limited. The company has also partnered with Bank Syariah Indonesia to provide life insurance services to the bank starting in early 2025. These two developments expand Prudential’s position in respective regions and increase penetration into bancassurance.
During Q3 2024, Prudential plc (NYSE:PUK) reported robust growth driven by an increase in sales across the international insurance and retirement market. The international business sales were up by 25% compared to Q3 2023. Prudential plc (NYSE:PUK) remains well positioned and is also working on improving its valuation. The company has announced to execute a second tranche of its $2 billion share buyback program. Prudential will initiate $800 million share buyback following the completion of the first tranche of the program for $700 million.
3. Mercury General Corporation (NYSE:MCY)
Analyst Upside: 66.01%
Forward P/E: 6.63
Mercury General Corporation (NYSE:MCY) is an insurance holding company focused on writing personal automobile insurance business. The company offers homeowners insurance in almost 10 states, commercial automobile insurance in four states, and mechanical protection insurance in various states.
Mercury General Corporation (NYSE:MCY) shares have been trading down by 27% year-to-date following challenging circumstances of potential losses due to wildfires. However, on January 12, Raymond James reiterated an Outperform rating on MCY shares, with a price target of $80, representing an upside of 66% from the stock’s current price. Raymond’s analyst has expressed confidence in the company’s recovery. The analyst pointed out that insurance is mainly based on replacement costs rather than market value.
Despite the massive economic losses, Mercury General Corporation’s robust top-line growth and underlying profitability will assist in the ongoing catastrophe. However, Raymond has reduced its Q1 2025 EPS estimate to $0, down from the previous outlook of $1.60 per share.
2. XP Inc. (NASDAQ:XP)
Analyst Upside: 79.47%
Forward P/E: 7.72
XP Inc. (NASDAQ:XP) is a leading technology-driven financial services platform in Brazil. The company offers low-fee financial products and services focused on disintermediating traditional financial institutions. XP also develops innovative products and technologies to empower its clients.
The company has shown remarkable growth, with client assets increasing at a 24.3% CAGR since its IPO in 2019, and a 51.3% CAGR since its capital investment in 2012. In Q3 2024, XP Inc.’s (NASDAQ:XP) fixed-income retail business increased by 31% annually, reaching R$938 million. Moreover, the acquisition of Banco Modal S.A. will expand XP’s client base and improve its ability to provide a wide range of financial solutions.
Brazil is expected to add over 6 million new households to its middle class by 2029, as per the Brazilian Chamber of Commerce. XP Inc. is focused on becoming a leader in retail investments and its potential for expansion makes it an appealing investment.
1. Banco Bradesco S.A. (NYSE:BBD)
Analyst Upside: 129.59%
Forward P/E: 5.65
Banco Bradesco S.A. (NYSE:BBD) is a Brazilian banking company that offers a range of financial services, including loans, insurance, and asset management. One of the oldest and largest banks in Brazil, Banco Bradesco is investing significantly in digital banking networks and expanding its insurance and wealth management segments.
The company has announced plans to launch Bradesco Principal, a subsidiary that will make credit cards targeting high-net-worth individuals. The company expects to onboard between 45,000 to 50,000 new clients in this new segment in early 2025.
Banco Bradesco S.A. (NYSE:BBD) continues its growth trajectory driven by increasing client base, improved profitability, and strategic policies. During the third quarter of 2024, the company’s net income soared 11% year-over-year to $868.01 million. The bank’s loan portfolio recorded 3.5% quarter-on-quarter growth, with a notable increase of 17% in SME lending. The company continues to onboard new clients and added 1.8 million new users in Q3 2024. Banco Bradesco S.A. has a nationwide presence in Brazil and holds a strong position in key locations globally, making it one of the promising financial stocks to invest in.
While we acknowledge the potential of BBD to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BBD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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