Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. These companies have benefited from improving market activity and economic fundamentals, so it's no surprise the industry has posted a 4.8% gain over the past six months, nearly mirroring the S&P 500.
Although these firms have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from the incumbents. On that note, here are two financials stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Financials Stock to Sell:
Morgan Stanley (MS)
Market Cap: $230.1 billion
Founded in 1924 during the post-WWI economic boom by former JP Morgan partners, Morgan Stanley (NYSE:MS) is a global financial services firm that provides investment banking, wealth management, and investment management services to corporations, governments, institutions, and individuals.
Why Is MS Not Exciting?
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 9.2% annually
- Annual tangible book value per share growth of 1.6% over the last five years lagged behind its financials peers as its large balance sheet made it difficult to generate incremental capital growth
- Debt-to-equity ratio of 5× shows the firm has taken on excessive debt, leaving little room for error
At $144.16 per share, Morgan Stanley trades at 16.1x forward P/E. Dive into our free research report to see why there are better opportunities than MS.
Two Financials Stocks to Buy:
Hamilton Lane (HLNE)
Market Cap: $6.54 billion
With over $100 billion in assets under management and supervision, Hamilton Lane (NASDAQ:HLNE) is an investment management firm that specializes in private markets, offering advisory services and fund solutions to institutional and private wealth investors.
Why Are We Backing HLNE?
- Annual revenue growth of 21.1% over the last five years was superb and indicates its market share increased during this cycle
- Share buybacks catapulted its annual earnings per share growth to 23%, which outperformed its revenue gains over the last two years
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
Hamilton Lane is trading at $150.42 per share, or 31.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Raymond James (RJF)
Market Cap: $32.39 billion
Founded in 1962 and headquartered in St. Petersburg, Florida, Raymond James Financial (NYSE:RJF) is a diversified financial services company that provides wealth management, investment banking, asset management, and banking services to individuals and institutions.
Why Will RJF Outperform?
- 11.2% annual revenue growth over the last five years surpassed the sector average as its products resonated with customers
- Share buybacks propelled its annual earnings per share growth to 19.6%, which outperformed its revenue gains over the last five years
- Balance sheet strength has increased this cycle as its 16.1% annual tangible book value per share growth over the last two years was exceptional
Raymond James’s stock price of $160.67 implies a valuation ratio of 15.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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