We recently compiled a list of the 10 Best Financial Services Stocks To Buy According to Analysts. In this article, we are going to take a look at where Citigroup Inc. (NYSE:C) stands against the other best financial services stocks to buy according to analysts.
According to the Financial Industry Index, which increased by more than 30% by mid-December and beat the overall market by about 5 percentage points, 2024 was a spectacular year for the financial industry. This growth followed concerns about mid-sized bank collapses in early 2024, which proved to be isolated incidents rather than an issue impacting the industry as a whole.
Meanwhile, as we have mentioned in our article, 10 Best Financial Stocks To Buy According to Hedge Funds, the market for financial services has expanded significantly in the last several years and is further expected to grow at a compound annual growth rate (CAGR) of 7.7% in the next few years.
Amidst the growth, as per EY’s report, the financial services industry is also undergoing a change because of artificial intelligence, particularly generative AI, which boosts productivity, modifications, and innovation. AI is helping banks provide individual solutions and improve risk control while accelerating processes like fraud detection, loan processing, and customer support. Large financial institutions are using AI to lower expenses, improve compliance, and create new products like automated tax compliance and predictive analytics. Nonetheless, issues like data privacy, rules of conduct, and AI’s “black box” decision-making continue to exist. Notwithstanding these obstacles, artificial intelligence is revolutionizing financial services by spreading beyond banking to include wealth management, insurance, and payments.
According to IBM’s report 2024, Generative AI is revolutionizing financial services by improving customer satisfaction and propelling advancements in risk assessment as well as personalized financial solutions. Secondly, the use of hybrid clouds is growing as companies seek to boost compliance, scalability, and efficiency. Thirdly, cybersecurity is still crucial, with growing investment in fraud detection systems as AI-driven threats emerge. Businesses are putting a greater spotlight on sustainability by giving green financial products and ESG initiatives top priority. By utilizing AI technologies such as Watsonx Assistant, customer experience management (CXM) increases customer pleasure and loyalty. Moreover, the use of open banking is growing as a result of APIs’ ability to simplify procedures and provide customers with more control over their data. Secure online transactions are being reinforced by the resurgence of digital currencies and blockchain.
Looking ahead, Deloitte’s 2025 investment management outlook predicts that AI, digital transformation, and changing investor demands will quickly impact the investment management industry in 2025. Low-cost funds are dominant, with active management flourishing within ETFs. Sustainability-focused investments, hybrid funds, and private financing are important growth areas. AI has exceeded expectations and is transforming operations and sales, but companies that are not embracing it quickly could fall behind. Regulatory changes, cybersecurity, and the combination of traditional and alternative assets are examples of growing risks. While some companies may find it difficult to survive in a high-risk, high-reward environment, bold companies that use AI and diversify their products may benefit from these changes. The key to success is scaling innovation and satisfying the need for sustainable, affordable solutions.
On the other hand, Deloitte’s 2025 banking and capital markets outlook report stated that banks can strengthen their basis for sustainable growth with creativity and discipline as the banking industry adjusts to a low-growth, lower-rate environment. It is anticipated that GDP growth will be 1.5% in 2025, and inflation will be approaching the 2% target, presenting a low-growth, lower-rate scenario for US banks. With savings exhausted by March 2024 and debt reaching $17.7 trillion, consumer spending may decline. Net interest margins may be compressed as a result of declining interest rates, with the federal funds rate falling to 350-375 basis points. Noninterest income presents opportunities, but growing salaries and technology expenditures drive up costs. Credit quality may slightly improve but is expected to stabilize. As geopolitical and regulatory uncertainty further complicate the picture, Deloitte observes that weak business investment and higher deposit costs will test banks’ adaptability.
A customer walking into a bank branch, expressing the convenience of consumer banking services.
Methodology
We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial services stocks. From the resultant dataset, we chose 10 stocks with a projected upside potential of over 7% based on analyst price targets, as of January 9. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
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)
Citigroup Inc. (NYSE:C)
Upside Potential as of January 9: 9.10%
Citigroup Inc. (NYSE:C), one of the Best Financial Stocks, is a global financial services company that operates in over 100 different countries and territories. The company’s operations are divided into five primary categories: US personal banking, markets, wealth management, banking, and services. The bank’s primary services include US credit card services, trade and investment banking, and cross-border banking requirements for multinational companies.
Citigroup Inc. (NYSE:C) operates a domestic retail banking division as well as an international commercial banking franchise. Large trading, investment banking, international corporate banking, and custody operations are all part of the bank’s commercial operations, which are divided into services, markets, and banking segments (previously known as Institutional Client Group or ICG). The company’s most distinctive business, considering its global presence, is its commercial banking segment. This global reach will help maintain its position as a favored bank for multinational firms. Despite these advantages, maintaining a global presence is expensive and challenging, and the bank’s markets division makes a small profit. As a result, the commercial banking industry has experienced several benefits.
As part of its strategic repositioning, Citigroup Inc. (NYSE:C) is selling off its consumer business in Mexico and reinvesting in wealth and commercial banking, among other significant actions. The company might at last become a franchise with structural improvements.
With the exception of divestitures, the company’s overall revenues increased by 3% in the third quarter of 2024 as each of its major segments enjoyed growth and improved operating leverage. Higher loan and deposit volumes, along with a significant fee increase, drove the Services segment’s 8% revenue gain, setting a new quarterly record. Significant progress was also made in wealth management, as evidenced by a 24% increase in client investment assets and a 9% rise in revenues. At Citigold North America, adviser productivity increased by over 50% YoY. Investment banking fees increased 44% year over year due to the issuance of investment-grade debt and strong advising performance. In addition, the company maintained a good CET1 capital ratio of 13.7% while returning $2.1 billion in capital, including $1 billion in share repurchases.
Warren Buffett’s Berkshire Hathaway was the largest stakeholder in the company among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 55.24 million shares worth $3.46 billion as of Q3.
Overall, C ranks 8th on our list of the best financial services stocks to buy according to analysts. While we acknowledge the potential for C to grow, 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 C 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.