5 stocks to buy in the best performing S&P 500 financial sector
With the S&P 500 index nearing 4,500, it’s time to take a look at its best performing sector: financials. The performance of the S&P 500 financial sector index, with a return of 30.3% since the beginning of the year, is proving impressive. During the same period, the S&P 500 index rose 19%.
It also signals a significant turnaround for the S&P 500 financial sector index, which lost 4.1% last year amid the coronavirus pandemic and resulting economic chaos. The pandemic has halted business activities around the world and locked people indoors for months as the government imposed stay-at-home orders.
While these efforts were able to contain the spread of the virus to some extent, it proved harmful to the economy. As a result, the US economy contracted by 3.5% in 2020.
Nevertheless, the country’s economy is running at full speed now, with real gross domestic product (GDP) having increased at the rate of 6.3% and 6.6% in the first and second quarters of 2021, respectively. This is largely due to the continued recovery and reopening of the economy, as well as the government’s continued support regarding the COVID-19 pandemic.
The health of the financial sector being directly linked to that of the economy, it is one of the main beneficiaries. Additionally, Federal Reserve officials forecast that the US economy should grow at a rate of 7% this year.
Apart from that, the central bank signaled an interest rate hike earlier than expected. At the June FOMC meeting, officials pointed out in their so-called “point-plot” that there could be two rate hikes by the end of 2023.
The financial sector should therefore continue to perform well this year and beyond, although the low interest rate environment will put pressure on its finances in the short term.
So now is a good time to add some financial stocks to your investment portfolio that will help you generate healthy returns in the future.
5 best bets in the financial sector
It is very difficult to focus on a handful of financial stocks from the vast universe of stocks. So with the help of the Zacks Stock Controller, we limited ourselves to stocks that have outperformed the S&P 500 so far this year and have double-digit earnings growth projections for 2021.
In addition to currently carrying a No. 2 (buy) Zacks rank, these stocks have a market cap of over $15 billion. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based on the criteria mentioned above, we chose Moody’s MCO, Nasdaq, Inc. NDAQ, Raymond James Financial, Inc. RJF, MetLife, Inc. ENCOUNTER and T. Rowe Price Group, Inc. TRUE.
Before we continue to check out the fundamental strengths and outlook for these stocks, let’s take a look at the chart showing the stock price performance of these companies so far this year.
Image source: Zacks Investment Research
As a leading provider of credit ratings, research, data and analytical tools, software solutions and related risk management services, Moody’s should continue to benefit from its business expansion efforts and its strong bond issuance volumes.
Moody’s has made several strategic acquisitions, which have allowed it to increase its scale and provide cross-selling opportunities across products and vertical markets. In August, the company signed a $2 billion cash deal to buy weather risk modeling firm RMS. In March and January of this year, the company completed the takeovers of Cortera and Catylist Inc., respectively.
These, and other strategic buyouts over the years, are expected to be accretive to company earnings. It is well positioned for growth thanks to its dominant position in the credit rating industry and its constant efforts to diversify the revenue base. Moody’s expects current-year revenue to grow in a double-digit percentage range.
After strong performance in the first half of 2021 and following the announcement of the proposed agreement with RMS, Moody’s GAAP earnings per share for 2021 are now expected to be between $10.90 and $11.20, while It was previously estimated between $10.95 and $11.25. The outlook for adjusted earnings per share remains in the range of $11.55 to $11.85.
With a market cap of $70.1 billion, the company’s earnings are expected to rise 17% year-over-year for 2021. The stock is up 29.3% year-to-date .
As a leading provider of trading, clearing, market technology, regulatory, securities listing, information, and services to public and private companies, Nasdaq remains focused on growth through buyouts opportunists and organic initiatives. These allow it to enter and cross-sell in new markets on a low-cost and highly flexible platform.
The Nasdaq has experienced significant growth over the years through a number of strategic expansions. Additionally, in its bid to evolve as a leading SaaS technology provider, it acquired Verafin in February. These deals have helped the company gain direct access to multiple global stock markets, expand its technology offering and grow its bottom line.
The Nasdaq remains focused on driving growth through organic means and is also constantly reviewing its business to increase/diversify revenue. The company is on track with respect to its goals of maximizing opportunities as an innovative analytical and technology partner in capital markets, developing and deploying a market economy technology strategy and consolidating competitive advantage in its core business.
The company is also accelerating the growth of its non-commercial revenue base. The Nasdaq forecasts organic revenue growth of 5-8% at Investment Intelligence, 8-11% at Market Technology and 3-5% at Corporate Platforms over the medium term.
The Nasdaq has a market capitalization of $32 billion. So far this year, the stock has jumped 44%. The company’s profits are expected to increase by 18.8% for the current year.
Inorganic expansion initiatives and a strong balance sheet will continue to support Raymond James’ earnings in the coming quarters. As a diversified financial services provider, the company has expanded its presence globally.
In an extremely competitive operating environment, most of Raymond James’ businesses are performing relatively well. The company’s Private Client Group (PCG) segment, which generates the most revenue, is supported by the acquisition of the US unit Private Client Services of Deutsche Asset & Wealth Management in 2016, which added a significant amount of client assets on its balance sheet.
Given a strong liquidity position, Raymond James has completed several strategic transactions over the past few years. In May 2021, the company signed an agreement to acquire Cebile Capital, while in March it acquired a boutique investment bank, Financo. In addition, it is extended in Europe and Canada using opportunistic takeovers. Management looks forward to active growth through acquisitions to further strengthen its PCG and Asset Management segments.
With a market capitalization of $18.9 billion, the company’s earnings are expected to rise 64.5% for fiscal 2021. The stock has jumped 45.9% year-to-date.
As a provider of life insurance and other related services, MetLife has a strong international presence. Despite the low interest rate environment, the company saw an increase in its net investment income, driven by its private equity investments. For 2021, the company expects variable investment income of $1.2 billion to $1.4 billion, assuming private equity remains strong.
MetLife is constantly streamlining its businesses, moving away from operations that do not create value. In June, it announced the sale of its wholly owned subsidiaries in Poland and Greece, while in April the company completed the sale of MetLife Auto & Home. These, and other similar initiatives, over the past few years will transform MetLife into a business with less volatility and help generate more free cash flow over the long term.
Additionally, MetLife is growing through acquisitions, leading to business diversification. In January, it closed the deal to acquire Versant Health for $1.7 billion, making it the third-largest eye care provider in the United States. The company made a foray into pet insurance with the acquisition of PetFirst.
MetLife has a market cap of $53.5 billion. The stock is up 31.6% so far this year. The company’s earnings are expected to increase by 29.6% for 2021.
T price. Rowe
Organic growth remains a major strength for T. Rowe Price, as evidenced by its track record of revenue growth. The company remains focused on strengthening the business through several planned initiatives largely related to the launch of new strategies and investment vehicles, improving customer engagement capabilities in each distribution channel, strengthening the channel of distribution through its footprint.
As a global investment management company, T. Rowe Price has been able to maintain earnings supported by its diversified business model. Going forward, the shift in composition to international growth funds should also help increase both revenue and the company’s investment management margin. For the five-year period ended June 30, 2021, 82% of T. Rowe Price mutual fund assets under management across all share classes outperformed the Morningstar median on a total return basis, while 79% exceeded the passive peer median.
T. Rowe Price remains debt-free with substantial liquidity, which includes total cash and investments of $7.48 billion as of June 30, 2021. This has helped to further leverage the company’s capital.
Since the start of the year, the stock has jumped 44.3%. With a market cap of $49.8 billion, the company’s earnings are expected to rise 34.8% for the current year.
5 shares ready to double
Each was handpicked by a Zacks expert as the #1 preferred stock to earn +100% or more in 2021. Previous recommendations have skyrocketed +143.0%, +175.9%, + 498.3% and +673.0%.
Most of the stocks in this report fly under the radar on Wall Street, which provides a great opportunity to get in on the ground floor.