In this article, we will discuss: 9 Best Financial Services Stocks To Buy Now.
Although there was significant turbulence in the financial markets in August, the state of global financing is still stable. Despite considerable falls in the equities and corporate debt markets, financing conditions have not tightened significantly, suggesting borrowing resilience.
However, following an almost 10% drop, the broad US stock market is still 5% below its peak in July. Similar declines have been seen in European stocks, although there has been some recovery in these markets; the 500 large companies market is up 3% from its August low.
The markets for corporate bonds have also been impacted. Higher-rated corporate bonds saw an increase in risk premiums, but not to the point where it materially affected borrowing conditions. The current market volatility, according to Chris Jeffrey of Legal & General Investment Management, hasn’t affected corporate or household finance conditions significantly. This perspective is supported by the financial conditions index of a major global financial institution, which indicates that while circumstances have tightened since mid-July, they are still historically loose and more accommodating than they were for a large portion of the prior year.
Amidst the financial turbulence, the financial services industry has faced challenges, but it also showed resilience. The long-term outlook for the industry remains positive. As we have mentioned in our article, “25 Biggest Financial Firms in the World,” the financial services industry is expected to rise at a CAGR of 7.7% over the next few years, from $31138.82 billion in 2023 to $33539.52 billion in 2024. In 2023, Western Europe accounted for the largest portion of the financial services market, with North America coming in second. Financial services are transforming as a result of generative AI, which presents chances for creativity and efficiency.
The McKinsey Global Institute (MGI) claims that banks are racing to implement Gen AI and that its full potential can be realized with the correct operational model in place. According to MGI, the use of Gen AI in the global banking market has the potential to generate value of $200 billion to $340 billion per year, or 2.8 to 4.7 percent of industry revenues, primarily through increased productivity. A new study by MGI examined the usage of Gen AI by 16 of the largest financial institutions in the US and Europe, which together manage assets worth close to $26 trillion. According to the study, more than half of the organizations examined have embraced a more centrally driven structure for next-generation AI, even if their current data and analytics architecture is relatively decentralized. Moreover, artificial intelligence, according to EY, is changing financial markets by improving risk management and enhancing customer experience due to its wide range of uses.
The RSM US’s Financial Services Industry Outlook 2024, also notes that the financial services market is quickly evolving, with a focus on responsible AI in insurance. Similar actions are being taken by states as well. For instance, insurance companies are required by the California Consumer Privacy Act to explain how AI is used in pricing and coverage decisions; violation carries hefty fines. Secondly, the number of retail-friendly investment products is also increasing. Retail investors are the focus of growing interest from asset managers, exchanges, and broker-dealers. Finally, the real exposure of financial institutions to CRE maturities is another trend in the financial services industry. Hence, financial institutions analyzing CRE-related risk should conduct a thorough credit risk evaluation.
With that said, here are the 9 Best Financial Services Stocks To Buy Now.
A series of ATMs in a row, symbolizing the company’s 24/7 banking services.
Methodology:
We sifted through holdings of financial services ETFs and financial media to form an initial list of 20 financial services stocks. Then we selected the 9 stocks that had the highest upside potential. The stocks are ranked in ascending order of the upside potential.
Some big shots in the financial services industry have been left out owing to our methodology since they had negative consensus upside.
Why are we interested in the stocks that hedge funds pile into? 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)
9. Berkshire Hathaway Inc. (NYSE:BRK)
Analysts’ Upside Potential: 6.84%
Berkshire Hathaway Inc. (NYSE:BRK.B) operates globally in the insurance, freight rail transportation, and utility areas through its subsidiaries. In addition to operating railroad systems throughout North America, the company offers property, casualty, life, accident, and health insurance as well as reinsurance.
Insurance is the firm’s primary business segment, which is managed by Geico, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group, respectively.
Berkshire Hathaway’s record $276.9 billion cash pile and robust 15.5% growth YoY in operational earnings in the second quarter of 2024 highlight the company’s flexibility and sound financial standing. The company’s various operations demonstrate resilience, including GEICO’s strong insurance performance.
The pre-tax underwriting earnings of Berkshire and its auto insurance, GEICO, grew dramatically year over year. In the second quarter of 2024, the conglomerate announced an 82% year-over-year growth in net underwriting earnings across its insurance and reinsurance companies, totaling $2.3 billion, exhibiting decreased frequency of claims, increased average premiums per auto policy, and improved operational efficiency.
However, GEICO’s policies in force are declining, and the company is repurchasing shares at a slower rate, which may indicate strategic uncertainty or other possible flaws that might impact its business in the future.
In Q2 2024, Berkshire Hathaway’s (NYSE:BRK.B) 13F stock portfolio value dropped to around $280 billion from approximately $332 billion in Q1 2024. The top five holdings, which make up around 73% of Berkshire’s portfolio, are Chevron, American Express, Apple Inc., Bank of America, and Coca-Cola.
Analyst Edward Jones’ James Shanahan said in a research note:
“BRK shares have significantly outperformed financial services peers during 2023, supported by a relatively strong earnings outlook. We continue to expect solid earnings from BRK’s diverse group of operating companies. In our view, however, the current share price reflects these positives,”
The large cash reserves that come particularly from the aforementioned segments give plenty of room for future investments or calculated risks, and it is currently yielding competitive returns due to rising rates. Moreover, Berkshire’s consistently high-profit performance and systematic share repurchase policy point to continued solid foundations.
Hence, it is one of the Best Financial Services Stocks to Buy Now. Analysts are bullish on the stock. The average target price set by analysts is $134.58, which is a 6.84% increase from the current stock price of $440.84.
8. S&P Global Inc. (NYSE:SPGI)
Analysts’ Upside Potential: 9.17%
One of the biggest credit rating companies in the world, S&P Global Inc. (NYSE:SPGI) provides the global capital and commodities markets with transparent, unbiased ratings, benchmarks, analytics, and data. This is an important benefit since it gives the company a competitive advantage, builds the company’s reputation, and helps it draw in and keep customers.
S&P Global Inc. (NYSE:SPGI)’s credit ratings and indexing revenue streams are well-known to many of us. However, the company has recently developed more depth than most people realize, having tapped into new business opportunities such as market intelligence, mobility, and commodity insights. As a result, S&P Global can be viewed as an integrated business with multiple renewed growth opportunities.
Strong demand for S&P Global’s data and analytics solutions caused its second-quarter 2024 revenue to soar by 14% YoY to $3.549 billion. Its operational profit margin after adjustments rose by 50.7% YoY. The firm raised its full-year expectations after reporting better-than-expected earnings, predicting revenue growth of 8% to 10% and adjusted EPS between $14.35 and $14.60.
The prospect of interest rate cuts and a soft landing for the economy, in which inflation declines without a recession or significant job losses, has spurred investors to spend more on products that aid in making better investment decisions, benefiting companies such as S&P Global.
Artisan Global Discovery Fund stated the following regarding S&P Global Inc. (NYSE:SPGI) in its Q1 2024 investor letter:
“We ended our investment campaigns in BJ’s Wholesale Club, Moncler and S&P Global Inc. (NYSE:SPGI) during the quarter. We assumed shares of S&P Global when it merged with IHS Markit. S&P Global is one of the largest credit rating agencies globally and a provider of benchmarks, data and analytics for the global capital and commodities markets. The company has gone through a free cash flow expansion period due to cost-cutting exercises driven by the merger. However, we believe that opportunity is maturing. Furthermore, recent earnings results displayed disappointing forward guidance, including lower rating revenue growth. Given the slowdown in the profit cycle, we decided to exit our position.”
Unexpected economic downturns that could lower demand for S&P Global’s data and analytics products as well as heightened competition that could put pressure on the company’s pricing power and market share are the company’s main risks. Furthermore, any postponement of interest rate reductions may have an effect on the company’s growth prospects.
However, with a “Buy” rating, the average 12-month price objective for SPGI stock, as estimated by 11 analysts, is $537.82. The average target suggests a 9.17% rise from the $492.65 stock price as it is right now.
7. Bank Of America Corporation (NYSE:BAC)
Analysts’ Upside Potential: 9.22%
In terms of total assets, Bank of America is the second-biggest commercial bank in the US. Boasting a significant retail banking presence throughout all major U.S. regions, Bank of America Corp (NYSE:BAC) provides services to about 69 million individual and small business customers.
BAC has created a strong brand presence and ease of use for its customers with about 3,800 retail financial locations, 15,000 ATMs, and top digital banking systems. The digital platforms of the bank boast an approximate user base of 46 million, comprising 38 million active mobile users. This suggests that the bank has effectively shifted to digital banking and is capable of meeting the changing demands of its clientele.
Global Wealth & Investment Management (GWIM), Global Banking, Global Markets, and Consumer Banking are BAC’s four primary business segments. By diversifying its business, BAC is able to provide a broad range of banking and nonbank financial services and products while reducing the risk of market and industry-specific downturns.
Bank of America has put in place initiatives that help both customers and staff. The most sophisticated and first publicly accessible virtual financial assistant, Erica, was introduced in 2024 and as of 2024, more than two billion clients had engaged with them. Erica’s skills assist corporate and individual clients throughout the company, including CashPro, Benefits, and Merrill.
BAC raised its minimum hourly wage to $23 in September 2023, with intentions to raise it to $25 by 2025.
Strong performance in the investment banking segment and solid net interest income helped Bank of America Corporation (NYSE:BAC) submit an earnings report card for the second fiscal quarter that was better than anticipated. The price of the shares increased by over 5% as a result of the earnings report, reaching a high not seen since the start of FY 2022.
In general, Bank of America’s robust revenue from trading and investment banking, along with a favorable projection for net interest income, points to the company’s durability and growth potential even in an environment where the fed is trying to curtail inflation. However, increased deposit costs and growing provisions for credit losses are eating into profitability.
ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
BAC is one of the Best Financial Services Stocks To Buy Now since it has promising growth potential, as seen by 19 analysts, BAC has a consensus Buy rating with an average price target of $42.39 and an upside potential of 9.22% from the current stock price of $38.81.
6. Mastercard Incorporated (NYSE:MA)
Analysts’ Upside Potential: 9.52%
Mastercard Incorporated (NYSE:MA) is a prominent multinational payments technology company that facilitates communication between financial institutions, retailers, governments, and consumers across over 210 countries and territories.
In a world where checks and cash are still used for 85% of retail transactions, the company keeps growing. Along with payment gateway services, Mastercard offers a variety of payment options, such as debit, credit, and prepaid cards.
Mastercard posted strong financial results in the second quarter of 2024, with a 17% YoY increase in profit to $3.3 billion. Earnings per share excluding one-time costs were $3.59, above market projections of $3.51. In addition to exceeding market forecasts, revenue increased by 13% YoY to $6.96 billion. Growth in major international markets like Europe and Latin America, along with a solid U.S. customer base, contributed to the impressive results.
In July 2024, Mastercard’s cross-border volume climbed by 17% year over year, pointing to a strong increase in travel demand. This growth helps the company maintain its strong global footprint. Maintaining a competitive advantage over competitors like Visa has been made possible by the company’s international growth strategy, especially in Europe and Latin America.
Even though Mastercard Incorporated (NYSE:MA) performed well, consumer spending may be slowing down. Switched volume growth slowed in Q2 2024 to 10% from 12% in Q1 to 2024.
Given its reliance on consumer health, the company is susceptible to downturns in the economy, particularly if spending is curtailed as a result of the Fed’s rate hikes. Furthermore, pressure on low-income clients may affect transaction volumes, which could jeopardize long-term expansion.
Logan Purk, technology analyst for Edward Jones, stated, “Mastercard’s results, while not perfect, should give reassurance that the spending environment remains solid,”
L1 Capital International Fund stated the following regarding Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter:
“The share prices of Mastercard Incorporated (NYSE:MA) and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
Given its strong international growth and strong financial performance, there are 26 analysts who have collectively rated the stock as a “buy.” The average price objective indicates a possible gain of 14.11% from the current stock price of $108.18.
5. Wells Fargo & Company (NYSE:WFC)
Analysts’ Upside Potential: 12.62%
Having been established in 1852, Wells Fargo is currently the fourth-biggest bank in the United States. It operates in 35 countries worldwide, providing a wide range of financial services and products. Wells Fargo offers extensive financial education resources and personalized help from financial advisors.
Wells Fargo & Company (NYSE:WFC) reported second-quarter earnings of 2024 that exceeded average forecasts for both the top and bottom line. However, the company missed expectations on net interest income, a crucial metric for financial institutions, and it has declined every quarter since Q4 2022. Wells Fargo’s net interest income, which measures the difference between interest revenue received on loans and interest expenses, fell 9% YoY, and the bank now forecasts an 8-9% drop this year.
As part of the investor “bull thesis” heading into the quarter, higher net interest income was anticipated by analysts, therefore, the management’s revised guidance of NII is expected to put pressure on the stock, according to Citigroup analyst Keith Horowitz in a note.
Wells Fargo CEO Charlie Scharf stated that the US economy is strong owing to a healthy job market, but he warned of the risks associated with higher inflation and interest rates. While banks struggle with the repercussions from higher-for-longer interest rates as borrowers refuse to take out new loans, they are also forced to pay more to keep customers who are seeking higher yields.
However, the lender witnessed modest strength in investment banking and reported stable balance sheet quality, similar to what Bank of America (BAC) reported last quarter.
Wells Fargo has strengthened its trading and investment banking operations under Scharf, hiring a few senior executives from competitors. In the second quarter of 2024, Wells Fargo’s revenue from investment banking increased by 38% to $430 million YoY. Wells Fargo is nevertheless limited by a $1.95 trillion asset limitation and continuous regulatory oversight in spite of its expansion.
Wells Fargo & Company (NYSE:WFC) is one of the best financial services stocks to buy now since it has received a “buy” recommendation from 17 analysts. WFC has an average Wall Street analyst price target of $60.43, indicating an upside potential of 12.62% from the company’s current $53.66 price.
