We recently published a list of 15 Small Cap Financial Stocks Hedge Funds Are Buying. In this article, we are going to take a look at where Morningstar, Inc. (NASDAQ:MORN) stands against other small cap financial stocks hedge funds are buying.
How to Navigate Adding Financials To Your Portfolio Amidst Tariff Uncertainty?
Much like other sectors of the economy, the financial and banking sector is likely to take a hit from the tariff uncertainty and recession fears. On April 8th, Reuters reported that the bank earnings season will likely shift from profit-making banks to losses. Mike Mayo, who is an analyst at Wells Fargo noted that the bank’s earning season will unveil the largest effect of tariffs in the coming quarters because banks will have to set aside higher reserves for loan losses due to recession fears. Moreover, Stephen Biggar, director of financial institutions at Argus Research, noted that banks are a direct reflection of the economy, therefore as the market slows down, this sector could be the one to take the hardest hits.
To talk about the impact of tariffs on the banking sector Suryansh Sharma, senior equity analyst at Morningstar joined Yahoo Finance for an interview on April 10. He noted that the tariffs were substantially aggressive compared to what the market expected. This aggressiveness was in terms of the breadth of countries and products these tariffs targeted. Although the policy is on pause for 90 days, however, the uncertainty is far from over. Sharma believes that if these tariffs continue to stay in effect, they will be harmful to the US economy. This is important for the banking sector as the sector is tied closely to the macroeconomic performance of the United States. Therefore if the economy is not doing well, the banking and financial sector will not perform well.
Sharma further elaborated on the impact of tariffs. He highlighted that if the tariffs stay in place, the macroeconomic conditions are likely to get worse, which can lead the economy towards a recession, meaning that the Fed will cut rates faster than expected. While many sectors benefit from lower interest rates, the banking sector does not. Lower interest rates mean contracting net interest income for asset management and banking stocks. Moreover, given the high levels of uncertainty, loan growth is also anticipated to head downwards, thereby impacting the overall Merger and Acquisition activity. Sharma highlighted that the market anticipated that the Trump administration would result in a lot of M&A activity leading to a banking sector boom, however, the current situation points towards a banking sector bust.
Lastly, the analyst highlighted that Morningstar believes that the banking sector is still undervalued compared to other sectors, however, very slightly undervalued. Therefore, he suggests investors be very selective in choosing the banks they want to invest in. He likes financial stocks that have strong fee-generating capabilities and are comparatively more undervalued than their fair value.
Our Methodology
To compile the list of 15 small-cap financial stocks hedge funds are buying, we used the Finviz Stock Screener and Insider Monkey’s Q4 2024 hedge funds database. Using the screener we aggregated a list of financial services stocks that are trading at a market cap of at least $10 billion. For the purpose of this article, we are defining small-cap financial services stocks as those that trade between a market cap of $10 billion and $20 billion. Next, after cross-checking the market capitalization from Yahoo Finance, we ranked the stocks in ascending order of the number of hedge fund holders. In cases where two or more stocks were held by an equal number of hedge funds, we used the market cap as a tiebreaker. Please note that the data was collected on April 18, 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
An investor looking over a complex portfolio of stocks and bonds while consulting a financial advisor.
Morningstar, Inc. (NASDAQ:MORN)
Market Capitalization: $11.856 Billion
Number of Hedge Fund Holders: 33
Morningstar, Inc. (NASDAQ:MORN) is a leading financial investment research, data, and analysis company that operates in more than 29 countries. It serves a variety of clients ranging from individual investors to asset managers. Its key segments include Morningstar Data and Analytics, PitchBook, Morningstar Wealth, Morningstar Credit, and Morningstar Retirement.
Morningstar, Inc. (NASDAQ:MORN) reported double-digit revenue growth in 2024. Its fourth-quarter revenue grew 9.7% year-over-year, whereas the full-year revenue grew 11.6% during the same time. Morningstar Data and Analytics was one of the biggest contributors to growth with $196.0 million in Q4 revenue and was driven by increased headcount, spending on marketing, and also the impact of the sale of the Company’s Commodity And Energy Data business. On the other hand, the PitchBook segment contributed $162.5 million after improving 12.5% year-over-year. Management noted that the integration of PitchBook with aftermarket equity research and the use of AI to transform workflows were the biggest drivers of growth. Morningstar, Inc. (NASDAQ:MORN) is one of the small-cap financial stocks hedge funds are buying.
Overall, MORN ranks 12th on our list of small cap financial stocks hedge funds are buying. While we acknowledge the potential of MORN to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than MORN but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.