Back to top

Image: Bigstock

4 Financial Stocks That Could Gain Big This Year

Read MoreHide Full Article

Stocks were on a rollercoaster ride last year. The coronavirus pandemic halted businesses globally and locked people indoors for months as government imposed stay-at-home orders. While these efforts were able to contain the spread of virus to some extent, it proved to be harmful for the economy.

Though the U.S. economy grew at an annual rate of 33.4% in third-quarter 2020, it declined 5% and 31.4%, respectively, in the first and second quarters. Also, per the Federal Reserve’s projections, the U.S. economy is expected to contract 2.4% in 2020.

As the finance sector’s financial health is directly related to that of the economy, it was among the hardest hit sectors. In 2020, the Zacks Finance sector Index was down 3.1% and was among the worst-performing sectors in the S&P 500 composite market ETF, which gained 18.6%.

Price Performance in 2020

 

Now in 2021, the big question that comes to our mind is - “Can the finance sector witness a reversal in 2021?” There seems to be a very high probability for the same with the turnaround starting in the last two months of 2020.

What’s driving investor optimism for the sector? Since the encouraging COVID-19 vaccine-related data started coming out from early November, the performance of finance sector stocks has reversed to some extent.

As vaccine developers including Pfizer and its German partner BioNTech, along with Moderna and AstraZeneca, started filing for emergency use and subsequently got approvals for the same, the vaccine-driven rally has continued. With coronavirus vaccines being rolled out in some countries, chances are that the economy will recover at a faster pace.

Further, the Fed officials project the U.S. economy to grow at a rate of 4.2% in 2021. Thus, the finance sector is expected to perform well this year, while low interest rate environment will likely continue to hurt.

Hence, this is the right time to add a few finance stocks to your investment portfolio that will help generate healthy returns in 2021.

4 Safe Bets for 2021 From Finance Sector

It is very difficult to zero in on a handful of finance stocks from the vast universe of stocks. So, with the help of the Zacks Stock Screener, we have narrowed down to four financial stocks that have lost 5% or more last year and are likely to bounce back in 2021.

Apart from presently carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy), these stocks have a market capitalization in excess of $5 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are the four financial stocks that are expected to gain big this year:

JPMorgan (JPM - Free Report) is the largest bank (in terms of market cap & total assets) in the United States. The bank is expanding footprint in new regions and aims to enter 15-20 markets by opening roughly 400 new branches by 2022-end. Apart from enhancing market share, the strategy will help the bank grab cross-selling opportunities by increasing presence in card and auto loan sectors.

Also, this Zacks Rank #1 bank is taking measures to further diversify operations. While JPMorgan is too big to be allowed to acquire another bank, there are no such restrictions on expanding other businesses via acquisitions.

Last month, at an investors’ conference, the company’s CEO Jamie Dimon signaled that the bank is considering buying asset management businesses or financial technology companies to accelerate growth. Moreover, it is carrying out on-bolt acquisitions that are likely to support its efforts to digitize operations and improve market share in several lucrative businesses.

Further, as the Fed has allowed share repurchases (albeit on certain conditions) from this year, JPMorgan was among the first ones to come out with the authorization. The company plans to buy back shares worth $30 billion in 2021 and maintain dividend at 90 cents per share for the first quarter.

With a market cap of $387.3 billion, JPMorgan is expected to continue benefiting from its scale and business expansion efforts. It is part of the Zacks Major Regional Banks industry, which currently carries a Zacks Industry Rank #61 and places it in the top 24% of nearly 253 Zacks industries.

The stock lost 8.9% in 2020. The company has the long-term (three-five years) projected earnings growth rate of 5%.

CME Group Inc. (CME - Free Report) was formed in 2007 by the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade. The company is the largest futures exchange in the world in terms of trading volume and notional value traded.

Organic growth remains CME Group’s key strength. Revenues witnessed a CAGR of nearly 10% over the last five years (2015-2019). The company will likely retain this momentum in the coming quarters, given its solid market position, diverse derivative product lines and global reach. Further, increasing electronic trading volume adds scalability and hence leverage to the company’s operating model.

Additionally, CME Group has been efficiently deploying capital via dividend payouts, thereby enhancing shareholder value. The company pays five dividends a year with the fifth being variable, which is based on excess cash flow in the year. Since it commenced the variable dividend policy in early 2012, CME Group has returned more than $14.1 billion in quarterly and variable dividends to shareholders. It has been increasing dividend annually, witnessing a five-year CAGR of 7.2%.

CME Group has a market cap of $65.7 billion and currently carries a Zacks Rank of 2. The company is part of the Zacks Securities and Exchanges industry, which has a Zacks Industry Rank of 72 and places it in the top 28% of nearly 253 Zacks industries.

The stock lost 9.3% in 2020. The company has long-term projected earnings growth rate of 2%.

The Hartford Financial Services Group, Inc. (HIG - Free Report) is one of the major multi-line insurance and investment companies in the country, providing investment products, group life and group disability insurance, property and casualty insurance, as well as mutual funds.

Hartford Financial is undertaking a number of strategic initiatives to improve the risk profile, with an aim of concentrating on U.S. operations and enhancing operating leverage. In addition to lowering expenses, boosting profitability and improving returns to shareholders, these efforts are enhancing financial flexibility by freeing up more capital.

Further, the company has been putting in efforts to boost its portfolio through acquisitions. In 2019, Hartford Financial acquired Navigators Group, a specialty insurer. The move helped Hartford Financial expand product offerings and geographic reach, in addition to strengthening commercial business lines. It is also expected to widen the company’s underwriting strength in product capabilities. All these initiatives position it well for long-term growth.

This Zacks Rank #2 company also has an attractive capital management strategy, featuring share buybacks and dividend hikes. Hartford Financial last announced a dividend hike of 8.3% in February 2020. Additionally, in December, it authorized a $1.5-billion share buyback plan, effective Jan 1, 2021 through Dec 31, 2022. The company intends to commence this program after it reports fourth-quarter 2020 results.

The company has a market cap of $17.6 billion. It is part of the Zacks Insurance - Multi line industry, which currently carries a Zacks Industry Rank #120 and places it in the top 47% of nearly 253 Zacks industries.

The stock declined 19.4% last year. The company has long-term projected earnings growth rate of 7%.

SEI Investments Company (SEIC - Free Report) is an asset management company and a leading provider of wealth management business solutions in the financial services industry. The company offers investment processing, management and operations solutions globally.

Technology is the backbone of SEI Investments’ businesses. The company’s primary business platform — Investment Processing — delivers outsourced software and processing services through TRUST 3000 and SWP. Constant innovations in software will likely help it win new clients and aid top-line growth. Over the last six years (2014-2019), the company’s revenues witnessed a CAGR of 5.4%, mainly driven by robust assets under management balance and global reach.

Further, SEI Investments’ partnership interest in LSV Asset Management is supporting profitability. The contribution of LSV to the company’s pre-tax income remained more than 25% over the last few years.

Moreover, SEI Investments continues to impress with enhanced capital deployment activities. In December 2020, the company hiked semi-annual dividend by 5.7%. Earlier in October, it authorized an increase in the share repurchase plan by $250 million. As of Sep 30, 2020, the company had $150.6 million worth of shares left to be repurchased under the previous authorization.

SEI Investments has a market cap of $8.3 billion and currently carries a Zacks Rank #2. The company is part of the Zacks Investment Management industry, which has a Zacks Industry Rank of 115 and places it in the top 45% of nearly 253 Zacks industries.

The stock declined 12.2% in 2020. The company has a long-term projected earnings growth rate of 12%.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks>>