Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. Still, investors are uneasy as companies face challenges from an unpredictable interest rate and inflation environment. These doubts have caused the industry to lag recently as financials stocks have collectively shed 4.6% over the past six months. This drawdown is a far cry from the S&P 500’s 11% ascent.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here are two resilient financials stocks at the top of our wish list and one we’re passing on.
One Financials Stock to Sell:
OneMain (OMF)
Market Cap: $6.17 billion
Dating back to 1912 and formerly known as Springleaf, OneMain Holdings (NYSE: OMF) provides personal loans, auto financing, and credit cards to nonprime consumers who have limited access to traditional banking services.
Why Are We Wary of OMF?
- 5.3% annual revenue growth over the last five years was slower than its financials peers
- Earnings per share fell by 5.5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
OneMain’s stock price of $53.42 implies a valuation ratio of 7.1x forward P/E. Check out our free in-depth research report to learn more about why OMF doesn’t pass our bar.
Two Financials Stocks to Buy:
Morningstar (MORN)
Market Cap: $6.87 billion
Founded in 1984 by Joe Mansueto with just $80,000 in personal savings, Morningstar (NASDAQ: MORN) provides independent investment data, research, and analysis tools that help investors, advisors, and institutions make informed financial decisions.
Why Is MORN a Good Business?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 11.5% annual sales growth over the last five years
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 40.7% exceeded its revenue gains over the last two years
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
At $180.78 per share, Morningstar trades at 15.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Moody's (MCO)
Market Cap: $78.32 billion
Founded in 1900 during America's railroad boom when investors needed reliable information on bond risks, Moody's (NYSE: MCO) provides credit ratings, risk assessment tools, and analytical solutions that help organizations evaluate financial risks and make informed investment decisions.
Why Will MCO Beat the Market?
- Annual revenue growth of 12.4% over the last two years beat the sector average and underscores the unique value of its offerings
- Share repurchases over the last two years enabled its annual earnings per share growth of 22.5% to outpace its revenue gains
- Industry-leading 59.3% return on equity demonstrates management’s skill in finding high-return investments
Moody's is trading at $446.68 per share, or 26.5x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
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