We recently compiled a list of the 9 Best Financial Services Stocks To Buy Now. In this article, we are going to take a look at where Apollo Global Management, Inc. (NYSE:APO) stands against the other financial services stocks.
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.
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)
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Apollo Global Management, Inc. (NYSE:APO)
Analysts’ Upside Potential: 15.59%
Renowned for its achievements in private equity, Apollo Global Management, Inc. (NYSE:APO) is among the biggest alternative asset managers globally. However, throughout the last 15 years, Apollo’s major growth driver has proven to be its investment-grade credit business, which is closely linked to the rise of its fully-owned insurance subsidiary, Athene.
Bank of America upgraded Apollo Global Management, Inc. (NYSE:APO) to “Buy” on August 5th, following a notable 20% decline in the company’s price earlier in the month. This drop came after the release of Q2 2024 earnings that were lower than expected and was accompanied by broader market worries over disappointing economic data and a dimming outlook for interest rates.
Apollo Global Management’s adjusted net income for the second quarter was unchanged, which fell short of Wall Street’s forecasts due to a decline in revenue from its retirement division offset by an increase in fees.
Apollo announced record-breaking quarterly fee-related earnings of $516 million for asset management and deal financing, up 16.7% YoY. Despite issues within the Athene unit, where profitability fell owing to decreased alternative investment income, the segment was able to raise $6 billion in cash, highlighting its strategic relevance.
Apollo has signed several agreements recently. It also secured an agreement to purchase International Game Technology’s gaming segment for a total of $6.3 billion in cash, along with Everi Holdings, a firm that makes slot machines, besides buying British parcel delivery company Evri for $3.5 billion. Additionally, Apollo invested $700 million in Sony Music Group.
Baron FinTech Fund stated the following regarding Apollo Global Management, Inc. (NYSE:APO) in its Q2 2024 investor letter:
“Strength in Tech-Enabled Financials was broad based, led by gains from alternative asset manager Apollo Global Management, Inc. (NYSE:APO) and specialty insurer Arch Capital Group Ltd. Apollo continues to benefit from disruptive trends in financial services, most notably the shift of retirement assets into higher-yielding private credit given the company’s dual role as an asset manager and an annuity provider. “
Nonetheless, it is the best financial services stock to buy right now since 14 analysts have collectively rated the stock as a “buy.” The average price objective of $122.5 indicates a possible gain of 15.59% from the current stock price of $105.98.
Overall APO ranks 2nd on our list of the best financial services stocks to buy. While we acknowledge the potential of APO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than APO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
