Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. But worries about economic uncertainty and potential market volatility have kept sentiment in check, and over the past six months, the industry has tumbled by 11.8%. This performance is a far cry from the S&P 500’s 3% ascent.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one financials stock boasting a durable advantage and two that may face trouble.
Two Financials Stocks to Sell:
Affiliated Managers Group (AMG)
Market Cap: $7.53 billion
Using a partnership approach that preserves entrepreneurial culture at its portfolio companies, Affiliated Managers Group (NYSE: AMG) is an investment firm that acquires stakes in boutique asset management companies while allowing them to maintain operational independence.
Why Does AMG Give Us Pause?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
At $280.17 per share, Affiliated Managers Group trades at 8.3x forward P/E. To fully understand why you should be careful with AMG, check out our full research report (it’s free).
Fiserv (FISV)
Market Cap: $31.28 billion
Powering over 1 billion accounts and processing more than 12,000 financial transactions per second globally, Fiserv (NASDAQ: FISV) provides payment processing and financial technology solutions that enable merchants, banks, and credit unions to accept payments and manage financial transactions.
Why Does FISV Worry Us?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 5.3% for the last two years
- Earnings per share lagged its peers over the last two years as they only grew by 7% annually
- Below-average return on equity indicates management struggled to find compelling investment opportunities
Fiserv is trading at $58.33 per share, or 7.3x forward P/E. Check out our free in-depth research report to learn more about why FISV doesn’t pass our bar.
One Financials Stock to Buy:
SoFi (SOFI)
Market Cap: $23.63 billion
Starting as a student loan refinancing company founded by Stanford business school students in 2011, SoFi Technologies (NASDAQ: SOFI) operates a digital financial platform offering lending, banking, investing, and other financial services to help members borrow, save, spend, invest, and protect their money.
Why Will SOFI Outperform?
- Annual revenue growth of 31.6% over the past two years was outstanding, reflecting market share gains this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 148% annually, topping its revenue gains
SoFi’s stock price of $18.24 implies a valuation ratio of 30.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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