We recently compiled a list of the 10 Best Financial Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Visa Inc. (NYSE:V) stands against the other best financial stocks to buy according to hedge funds.
According to the Business Research Company, 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.
The year 2024 was remarkable for the financial sector, as seen by the Financial Sector Index, which rose over 30% as of mid-December and outperformed the broader market by almost 5 percentage points. This expansion came after worries over mid-sized bank failures in early 2024, which turned out to be isolated events rather than a problem affecting the entire industry.
As of January 7, 2025, the market’s financial sector produced returns of 5.51% over three years, 9.68% over five years, and 9.49% over ten years. These numbers, however, pale in comparison to the sector’s remarkable success during the previous 12 months, which saw a return of 28.01%.
Looking forward, according to Fidelity’s report, the financial industry’s prospects for 2025 seem promising, backed by consistent economic expansion in the United States. It is projected that the Federal Reserve’s move to rate decreases in the second half of 2024 will boost confidence and lower credit risk. Falling rates have the potential to boost lending and deposit growth while also reducing net interest margins.
As per Fidelity analyst Matt Reed:
“Lower rates boost economic momentum, benefiting banks and payment processors alike.”
Banks that are well-diversified and have solid fundamentals are better equipped to handle a soft landing situation. Sensitive to consumer spending, payment processors are likewise poised for expansion as more accommodating monetary policy and strong consumer activity coincide.
Risks still exist, though. As per the aforementioned report, if the economy weakens, some lenders may face difficulties due to their exposure to commercial real estate and possible nonperforming loans. Nonetheless, financials start 2025 with significant momentum due to a less stringent regulatory agenda following the election and more prospects for mergers and acquisitions.
Michael Kantrowitz, chief investment strategist at Piper Sandler stated:
“I think investors have rotated a little bit out of some of the big tech companies and into the big financial companies,”
He claimed that while a lot of optimism about artificial intelligence (AI) is priced into tech businesses, some investor movement made sense since the rate environment has improved for bank earnings.
Deloitte’s 2025 banking and capital markets outlook report states 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. According to the report, the baseline scenario for economic growth in 2025 is projected to fall to 1.5%, with possible deviations between 1.0% and 1.9% due to slowing consumer spending, greater unemployment, and sluggish business investment. By Q2 of 2024, consumer debt had risen to $17.7 trillion, and by March 2024, savings from the pandemic had been spent, further straining the economy. Inflation is forecast to be around 2%, allowing for three to four rate cuts, bringing the federal funds rate down to 350-375 basis points. Treasury yields are projected to fall, and following two years of inversion, the yield curve may normalize. With the exception of economies that are under pressure, global central banks will likely choose to cut benchmark rates.
A close-up of a modern payments terminal with a pile of credit cards on the side.
Methodology
We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks.
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).
Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 165
Visa Inc. (NYSE:V) is the world’s largest payment processor. It handled about $15 trillion in total volume in fiscal 2023. The firm handles transactions in more than 160 currencies and operates in more than 200 countries. Its systems can handle more than 65,000 transactions in a second. In 2024, the stock increased by about 18%, making it the best financial stock.
Visa Inc. (NYSE:V) is typically connected with credit and debit cards; however, it does not issue or manage any of these accounts. To issue Visa-branded cards, it solely collaborates with banks and other financial institutions; accounts are managed by their partners.
In Q4 of 2024, the company reported a 12% year-over-year growth in net revenue of $9.6 billion, with a 16% increase in earnings per share. Expectations were met as net sales expanded by 10% and EPS improved by 15% over the fiscal year. The company reported considerable growth in new flows, with revenue up 22% year on year in constant dollars, driven by a rise of 38% in Visa Direct transactions. Revenue from value-added services increased by 22% in constant dollars as well. Visa secured 650 new business partnerships while expanding and renewing important ones, such as deals with Grupo Promerica, SMCC, Alrajhi, Standard Chartered Bank, RBC, Americas Bank, and USAA. Innovations in payment solutions, including the forthcoming Flexible Credential solution and Visa A2A for account-to-account payments, highlight the company’s dedication to technical advancement. Furthermore, in fiscal 2024, there were over 2 billion tap-to-ride transactions globally, a 25% increase from the previous year, showing Visa Inc. (NYSE:V)’s dominance in contactless payments.
Wells Fargo maintained its Overweight rating on Visa Inc. (NYSE:V) shares and increased its price objective from $325 to $360. The company is optimistic about consumer finance companies based on the Q4 results, stating that there are regulatory catalysts and that consumer metrics are trending stronger. In a research report, the analyst informs investors that modestly increased interest rates do not dissuade stocks or fundamentals. Wells believes with “high conviction the rally is to resume for the card issuer and network stocks.”
Chris Hohn’s TCI Fund Management was the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 16.80 million shares worth $4.62 billion as of Q3.
Qualivian Investment Partners stated the following regarding Visa Inc. (NYSE:V) in its Q3 2024 investor letter:
“Visa Inc. (NYSE:V): FQ3 2024 revenues and EPS came inline versus consensus estimates with revenue and EPS growing 10% and 12% respectively. Payment volume increased by 7% and the highly profitable cross border volume increased by 14%. Operating margins at 67.1% missed consensus expectations at 67.4%. Management’s commentary on consumer spending for the back half of 2024 suggested a cautious but stable backdrop. Similar to our thoughts on MA, while we do not view V as immune to the macro backdrop, we continue to expect that over the longer term, it will continue to drive and benefit from the digitization of payments globally.
Overall, V ranks first on our list of the Best Financial Stocks To Buy According to Hedge Funds. While we acknowledge the potential for V 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 V 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.