In this article, we will take a look at the 10 best financial services stocks to invest in right now. If you want to explore similar stocks, you can also take a look at 5 Best Financial Services Stocks To Invest In Right Now.
Strategist Makes The Case For Buying The Dip In Financials
On April 5 BMO Capital's Chief Investment Strategist, Brian Belski, appeared in an interview on CNBC where he made the case for investing in financial services stocks and also talked about his outlook for the second half of 2023. Belski thinks that investors should "take two steps back" and take an analytical, logical, and long-term approach right now. According to Belski, the market has devalued financial stocks and he thinks that there are three things that this may lead to. Firstly, Belski thinks that the opposite of what happened in the aftermath of the global financial crisis will happen right now. Back then, small and medium banks were among the best performers and large banks took a tumble. Belski thinks that large banks and Canadian banks "will be the winners" since they have strong balance sheets and the stability that investors want right now. Secondly, Belksi expects increased M&A activity for small and medium-sized banks, given the issues the are currently dealing with. Finally, Belksi noted that he thinks there is going to be "pointed regulation" towards the small and medium-sized banks. Here are some comments from Brian Belski:
"From a fundamental perspective, tier-1 capital ratios are 400 basis points above where we were in the great financial crisis. Loan-to-deposit ratios are very steady. Held-to-maturity securities are very pointed in those banks that were the "bad behavior" banks. We're seeing no systemic risk. But the financials, at 14% of the market, we believe would be a Strong Overweight here and propose a great value at these levels. You don't have to own them all, you have to be very select. And from our work with rising dispersion and rising earnings growth dispersion across the market, especially on a sector level, you absolutely positively have to be a stock picker."
Brian Belski said "stocks lead earnings, which lead the economy" and if the economy shows signs of weakness, the Fed will stop its hiking cycle and start cutting interest rates. Belski thinks that the market will be relatively choppy in the first half of the year, but he expects things to pick up and the market to rally in the second half of 2022.
As noted by Brian Belski, financials are currently trading at attractive valuations. However, the current market environment requires investors to be a "stock picker" and so, we have compiled a list of the best financial services stocks to buy now according to hedge funds. Looking at where institutional investors are placing their bets can help investors determine what may work as we head into the back half of the year. Some of the best financial services stocks to buy now according to hedge funds include Bank of America Corporation (NYSE:BAC), Berkshire Hathaway Inc. (NYSE:BRK-B), and Mastercard Incorporated (NYSE:MA). Let's now discuss these stocks, among others, in detail below.
Photo by Ruben Sukatendel on Unsplash
We scanned for financial services companies in Insider Monkey's database of 943 elite money managers. We narrowed down our selection to financial services stocks that were the most widely held by hedge funds. Along with each stock, we have mentioned the hedge fund sentiment, analyst ratings, and top shareholders as well. We have ranked these stocks in ascending order of the number of hedge funds that have stakes in them.
10 Best Financial Services Stocks To Invest In Right Now
10. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 74
The Charles Schwab Corporation (NYSE:SCHW) was spotted on 74 investors' portfolios that disclosed positions worth $8.1 billion in the company. Of those, GQG Partners was the top investor in the company and held a position worth $1.4 billion.
This March, Citi analyst Christopher Allen updated his price target on The Charles Schwab Corporation (NYSE:SCHW) to $65 from $75 and maintained a Buy rating on the shares. The stock is one of the best financial services stocks to invest in right now according to hedge funds.
On March 29, The Charles Schwab Corporation (NYSE:SCHW) disclosed that Marianne Brown, one of the company's directors, purchased $0.26 million worth of the company's common shares.
LVS Advisory made the following comment about The Charles Schwab Corporation (NYSE:SCHW) in its Q1 2023 investor letter:
“We exited The Charles Schwab Corporation (NYSE:SCHW) during the week leading up to the Silicon Valley Bank failure at a price in the high $60s. I sent an ad hoc note to partners on March 11 discussing our decision to sell the stock but I will add some additional context here. We invested in Charles Schwab during the summer of 2022 (discussed in our Q3 2022 letter) shortly after making our investment in Interactive Brokers. While Interactive Brokers is focused on faster-growing international markets and more sophisticated traders, Charles Schwab is a more mature US business focused on retirement accounts and wealth managers. Our investment thesis was that Schwab would benefit from higher interest rates and after years of investment would begin returning a significant amount of capital to shareholders.
My view changed when it became clear that liquidity would become a greater issue for all banks in early March. We believe Schwab has enough liquidity to operate its business, but we no longer believe the company is in a position to return capital. Furthermore, Schwab saw a higher degree of deposit flight in Q4 than we expected leading us to believe the problem could get worse before it gets better. Schwab may even need to raise additional equity capital to reassure the market of its liquidity position which would drastically change the risk/reward calculation of investing in the stock. While we realized a ~6% loss on our investment, our ability to quickly recalibrate our views during the early stages of the March banking crisis prevented us from losing an additional 20%+ if we had held on until today.”
9. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 81
This April, Barclays updated its price target on Citigroup Inc. (NYSE:C) to $59 from $61 and reiterated an Equal Weight rating on the shares. Citigroup Inc. (NYSE:C) is one of the best financial services stocks to invest in right now, according to hedge funds.
Citigroup Inc. (NYSE:C) reported strong earnings for the first quarter of fiscal 2023, on April 14. The company's revenue amounted to $21.45 billion, up 11.78% year over year, and outperformed revenue consensus by $1.39 billion. The company's EPS for the quarter amounted to $2.19 and beat EPS estimates by $0.50.
At the end of the fourth quarter of 2022, Citigroup Inc. (NYSE:C) was a part of 81 hedge funds' portfolios that held positions worth $7.4 billion in the company. Of those, Berkshire Hathaway was the leading investor in the company and disclosed a position worth $2.49 billion.
In addition to Citigroup Inc. (NYSE:C), hedge funds are also bullish on Bank of America Corporation (NYSE:BAC), Berkshire Hathaway Inc. (NYSE:BRK-B), and Mastercard Incorporated (NYSE:MA).
8. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 87
On April 14, Wells Fargo & Company (NYSE:WFC) announced market-beating earnings for the first quarter of fiscal 2023. The company reported an EPS of $1.23 and outperformed EPS estimates by $0.09. The company's revenue for the quarter amounted to $20.73 billion, up 17.83% year over year and ahead of Wall Street consensus by $669.31 million. Wells Fargo & Company (NYSE:WFC) is placed eighth on our list of the best financial services stocks to buy now.
This April, Raymond James analyst David Long upgraded Wells Fargo & Company (NYSE:WFC) to Strong Buy from Outperform and revised his price target on the shares to $47 from $52.
At the end of Q4 2022, 87 hedge funds were long Wells Fargo & Company (NYSE:WFC) and held collective stakes worth $5.5 billion in the company. Of those, Eagle Capital Management was the dominant shareholder and held a position worth $1.1 billion.
Davis Advisors made the following comment about Wells Fargo & Company (NYSE:WFC) in its 2022 annual investor letter:
“Our investment thesis for our next largest bank investment, Wells Fargo, is totally different. As is well known, Wells Fargo & Company (NYSE:WFC) is the country’s third-largest bank, serving one in three U.S. households. Years of regulatory missteps under prior managements resulted in reputational damage, higher-than-average expenses, numerous consent orders, caps on asset growth, all added to the negative impact of low rates on their interest income. However, where others see bad news, we see resiliency and gradual improvement. Wells Fargo’s resiliency is reflected in the fact that despite years of terrible headlines and congressional hearings, Wells Fargo’s core customers stayed put and customer attrition remains extraordinarily low.
As to gradual improvement, new management has made steady headway in closing consent orders, settling regulatory matters and upgrading systems. Thus, rather than increasing profits from growth, Wells Fargo’s earnings growth for the next three-to-five years should come from the combined tailwinds of rising interest income, partially offset by normalizing credit costs, reduced expenses as systems improve and the scandals of the last decade are gradually put behind them, and the return of excess capital through share repurchases and rising dividends. The hypothetical earnings bridge displayed in Figure 6 gives some sense of the earnings power we see unfolding in the years ahead for this durable financial franchise.
While our grounded optimism carries the day, we are mindful of the risk that Wells Fargo’s historically excellent credit culture may have deteriorated, or that exasperated regulators may choose to extract even more major penalties for past infractions.”
7. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 97
Wall Street sees material upside to S&P Global Inc. (NYSE:SPGI) and the stock is one of the best financial services stocks to invest in right now. This February, Argus analyst John Eade raised his price target on S&P Global Inc. (NYSE:SPGI) to $400 from $380 and reiterated a Buy rating on the shares.
As of April 14, S&P Global Inc. (NYSE:SPGI) has gained roughly 17% over the past 6 months. Moreover, according to the company's balance sheet, S&P Global Inc. (NYSE:SPGI) has a trailing twelve-month FCF of more than $2.5 billion.
S&P Global Inc. (NYSE:SPGI) was held by 97 hedge funds at the end of Q4 2022. The total stakes of these hedge funds amounted to $7.8 billion. As of December 31, TCI Fund Management is the most prominent investor in the company and has a stake worth $3 billion.
Baron Funds made the following comment about S&P Global Inc. (NYSE:SPGI) in its Q4 2022 investor letter:
“Shares of rating agency and data provider S&P Global Inc. (NYSE:SPGI) increased 10.1% during the quarter as investors looked past weak debt issuance activity and anticipated a potential issuance rebound in 2023. Equity markets rose during the quarter, offering some reprieve to asset-based revenue headwinds. The company also hosted an Investor Day during which management provided medium-term financial guidance of 7% to 9% annual revenue growth and low to mid-teens annual EPS growth. We continue to own the stock due to the company’s durable growth characteristics that are underpinned by the secular trends of increasing bond issuance, growth in passive investing, and demand for data and analytics, while also benefiting from significant competitive advantages.”
6. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 100
At the close of the fourth quarter of 2022, 100 hedge funds disclosed having stakes in JPMorgan Chase & Co. (NYSE:JPM). The total value of these stakes amounted to $5.1 billion. As of December 31, Greenhaven Associates is the leading shareholder in the company and holds a position worth $643 million.
JPMorgan Chase & Co. (NYSE:JPM) reported stellar earnings for the fiscal first quarter of 2023 on April 14. The company reported a revenue of $38.35 billion for the quarter, up 24.85% year over year, and outperformed revenue consensus by $2.58 billion. JPMorgan Chase & Co. (NYSE:JPM) reported an EPS of $4.10 and beat EPS estimates by $0.73.
Shortly after the company's earnings release, Goldman Sachs raised its price target on JPMorgan Chase & Co. (NYSE:JPM) to $172 from $160 and maintained a Buy rating on the shares. As of April 14, the stock has returned 8% to investors over the past 12 months. JPMorgan Chase & Co. (NYSE:JPM) is one of the best financial services stocks to buy now, according to hedge funds.
Some of hedge funds' and analysts' top stocks from the financial services segment include Bank of America Corporation (NYSE:BAC), Berkshire Hathaway Inc. (NYSE:BRK-B), and Mastercard Incorporated (NYSE:MA).
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Disclosure: None. 10 Best Financial Services Stocks To Invest In Right Now is originally published on Insider Monkey.