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5 Stocks to Buy From Top Performing S&P 500 Finance Sector
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With the S&P 500 Index close to hitting 4,500, it is the time to take a look at its top performing sector – Financial Services. Performance of the S&P 500 Financials Sector Index, with a year-to-date return of 30.3%, is turning out to be impressive. Over the same time frame, S&P 500 Index has rallied 19%.
This also indicates a significant turnaround for the S&P 500 Financials Sector Index, which had lost 4.1% last year amid the coronavirus pandemic and resultant economic mayhem. The pandemic halted business activities 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 harmful for the economy. As a result, the U.S. economy contracted 3.5% in 2020.
Nevertheless, the country’s economy is firing all cylinders 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 was largely driven by continued recovery and reopening of economy, and constant government support pertaining to the COVID-19 pandemic.
As the finance sector’s health is directly related to that of the economy, it is among the biggest beneficiaries. Further, the Federal Reserve officials project the U.S. economy to grow at a rate of 7% this year.
Apart from this, the central bank has been signaling sooner-than-expected interest rate hike. In June FOMC meeting, the officials had pointed out in their so-called “dot-plot” that there might be two rate hikes by 2023-end.
The finance sector is, thus, expected to continue performing well this year and beyond, though the low interest rate environment will put pressure on its financials in the near term.
So, this is the right time to add a few finance stocks to your investment portfolio that will help generate healthy returns going forward.
5 Best Bets From Finance Sector
It is very difficult to zero in on a handful of finance stocks from the vast universe of stocks. Hence, with the help of the Zacks Stock Screener, we have narrowed down to those stocks that have outperformed the S&P 500 so far this year and have earnings growth projections of more than 10% for 2021.
Before we proceed further to check these stocks’ fundamental strengths and prospects, let’s take a look at the chart showing the share price movement of these companies so far this year.
Image Source: Zacks Investment Research
Moody’s
As a leading provider of credit ratings, research, data & analytical tools and software solutions & related risk management services, Moody’s is expected to continue benefiting from its business expansion efforts and solid bond issuance volumes.
Moody’s made several strategic acquisitions, which has provided it with increased scale and cross-selling opportunities across products and vertical markets. In August, the company inked a $2 billion cash deal to buy climate risk modeling firm, RMS. In March and January this year, the company concluded the buyouts of Cortera and Catylist Inc., respectively.
These, along with other strategic buyouts over the years, are expected to be accretive to the company’s earnings. It is well positioned for growth on the back of its dominant position in the credit rating industry and constant efforts to diversify the revenue base. Moody’s projects revenues for the current year to increase in the low-double-digit percent range.
Following solid first-half 2021 performance and consequent to the announcement of the proposed RMS deal, Moody’s 2021 GAAP earnings per share is now projected to be $10.90-$11.20, while earlier it was estimated to be in the $10.95-$11.25 range. Adjusted earnings per share outlook remains in the range of $11.55-$11.85.
With a market cap of $70.1 billion, the company’s earnings are expected to grow 17% year over year for 2021. The stock has rallied 29.3% in the year-to-date period.
Nasdaq
As a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services, Nasdaq remains focused on growth through opportunistic buyouts and organic initiatives. These enable it enter and cross-sell into new markets at a low-cost and highly-flexible platform.
Nasdaq has grown meaningfully over the years through a number of strategic expansions. Further, in its bid to evolve as a leading SaaS technology provider, it acquired Verafin this February. These deals have helped the company gain direct access to several global equities market, expand its technology offering and be accretive to its results.
Nasdaq remains focused on boosting growth via organic means and also constantly reviews its businesses to augment/diversify the top line. The company is on track regarding its goals of maximizing opportunities as an innovative analytics and technology partner in the capital markets, develop and deploy marketplace economy technology strategy and consolidate competitive edge in its core operations.
The company is also accelerating growth at its non-trading revenue base. Nasdaq projects 5-8% revenue organic growth at Investment Intelligence, 8-11% at Market Technology and 3-5% at Corporate Platforms over medium term.
Nasdaq has a market cap of $32 billion. So far this year, the stock has jumped 44%. The company’s earnings are expected to grow 18.8% for the current year.
Raymond James
Inorganic expansion initiatives and strong balance sheet will continue to support Raymond James’ revenues in the quarters ahead. As a diversified financial service provider, the company has been expanding its footprint globally.
In an intensely competitive operating environment, most of Raymond James’ businesses are performing relatively well. The company’s Private Client Group (PCG) segment, the largest revenue garner, is getting support from the acquisition of U.S. Private Client Services unit of Deutsche Asset & Wealth Management in 2016, which added a significant amount of client assets to its balance sheet.
Given a strong liquidity position, Raymond James has accomplished several strategic deals over the past few years. In May 2021, the company inked a deal to acquire Cebile Capital, while in March, it acquired a boutique investment bank, Financo. Also, it is expanded into Europe and Canada with the help of opportunistic buyouts. Management looks forward to actively growing through acquisitions with an aim to further strengthen its PCG and Asset Management segments.
With a market cap of $18.9 billion, the company’s earnings are expected to surge 64.5% for fiscal 2021. The stock has jumped 45.9% in the year-to-date period.
MetLife
As a provider of life insurance and other related services, MetLife has strong international presence. Despite the low interest rate environment, the company is witnessing rise in net investment income, driven by its private equity investments. For 2021, the company anticipates a variable investment income of $1.2-$1.4 billion, on the assumption that private equity will remain strong.
MetLife constantly streamlines its business lines, moving away from operations that do not create value. In June, it announced sale of its wholly-owned subsidiaries in Poland and Greece, while this April, the company closed the sale of MetLife Auto & Home. These, along with other similar initiatives, over the past few years, will transform MetLife into a company with less volatility and help generate more free cash flow over the long term.
Also, MetLife is growing through acquisitions, which is leading to business diversification. In January, it concluded the deal to acquire Versant Health for $1.7 billion, making it the third largest vision care provider in the United States. The company has forayed into the pet insurance space with the buyout of PetFirst.
MetLife has a market cap of $53.5 billion. The stock has rallied 31.6% so far this year. The company’s earnings are expected to grow 29.6% for 2021.
T. Rowe Price
Organic growth remains a key strength for T. Rowe Price, as reflected by its revenue growth story. The company remains focused on fortifying business through several planned initiatives largely tied with launching new investment strategies and vehicles, enhancing client engagement capabilities in each distribution channels, strengthening distribution channel across its footprint.
As a global investment management firm, T. Rowe Price has been able to sustain earnings supported by its diverse business model. Going forward, the mix shift toward international growth funds is also expected to help increase both revenue and investment management margin of the company. For the five-year period, ended Jun 30, 2021, 82% of the T. Rowe Price mutual funds assets under management throughout the share classes outperformed Morningstar median on a total return basis, while 79% surpassed passive peer median.
T. Rowe Price remains debt-free with substantial liquidity, which includes total cash and investments of $7.48 billion as of Jun 30, 2021. This has aided in strengthening the company’s capital leverage.
In the year-to-date period, the stock has surged 44.3%. With a market cap of $49.8 billion, the company’s earnings are expected to increase 34.8% for the current year.
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5 Stocks to Buy From Top Performing S&P 500 Finance Sector
With the S&P 500 Index close to hitting 4,500, it is the time to take a look at its top performing sector – Financial Services. Performance of the S&P 500 Financials Sector Index, with a year-to-date return of 30.3%, is turning out to be impressive. Over the same time frame, S&P 500 Index has rallied 19%.
This also indicates a significant turnaround for the S&P 500 Financials Sector Index, which had lost 4.1% last year amid the coronavirus pandemic and resultant economic mayhem. The pandemic halted business activities 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 harmful for the economy. As a result, the U.S. economy contracted 3.5% in 2020.
Nevertheless, the country’s economy is firing all cylinders 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 was largely driven by continued recovery and reopening of economy, and constant government support pertaining to the COVID-19 pandemic.
As the finance sector’s health is directly related to that of the economy, it is among the biggest beneficiaries. Further, the Federal Reserve officials project the U.S. economy to grow at a rate of 7% this year.
Apart from this, the central bank has been signaling sooner-than-expected interest rate hike. In June FOMC meeting, the officials had pointed out in their so-called “dot-plot” that there might be two rate hikes by 2023-end.
The finance sector is, thus, expected to continue performing well this year and beyond, though the low interest rate environment will put pressure on its financials in the near term.
So, this is the right time to add a few finance stocks to your investment portfolio that will help generate healthy returns going forward.
5 Best Bets From Finance Sector
It is very difficult to zero in on a handful of finance stocks from the vast universe of stocks. Hence, with the help of the Zacks Stock Screener, we have narrowed down to those stocks that have outperformed the S&P 500 so far this year and have earnings growth projections of more than 10% for 2021.
Apart from presently carrying a Zacks Rank #2 (Buy), these stocks have a market capitalization in excess of $15 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based on the above-mentioned criteria, we have chosen Moody’s (MCO - Free Report) , Nasdaq, Inc. (NDAQ - Free Report) , Raymond James Financial, Inc. (RJF - Free Report) , MetLife, Inc. (MET - Free Report) and T. Rowe Price Group, Inc. (TROW - Free Report) .
Before we proceed further to check these stocks’ fundamental strengths and prospects, let’s take a look at the chart showing the share price movement of these companies so far this year.
Image Source: Zacks Investment Research
Moody’s
As a leading provider of credit ratings, research, data & analytical tools and software solutions & related risk management services, Moody’s is expected to continue benefiting from its business expansion efforts and solid bond issuance volumes.
Moody’s made several strategic acquisitions, which has provided it with increased scale and cross-selling opportunities across products and vertical markets. In August, the company inked a $2 billion cash deal to buy climate risk modeling firm, RMS. In March and January this year, the company concluded the buyouts of Cortera and Catylist Inc., respectively.
These, along with other strategic buyouts over the years, are expected to be accretive to the company’s earnings. It is well positioned for growth on the back of its dominant position in the credit rating industry and constant efforts to diversify the revenue base. Moody’s projects revenues for the current year to increase in the low-double-digit percent range.
Following solid first-half 2021 performance and consequent to the announcement of the proposed RMS deal, Moody’s 2021 GAAP earnings per share is now projected to be $10.90-$11.20, while earlier it was estimated to be in the $10.95-$11.25 range. Adjusted earnings per share outlook remains in the range of $11.55-$11.85.
With a market cap of $70.1 billion, the company’s earnings are expected to grow 17% year over year for 2021. The stock has rallied 29.3% in the year-to-date period.
Nasdaq
As a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services, Nasdaq remains focused on growth through opportunistic buyouts and organic initiatives. These enable it enter and cross-sell into new markets at a low-cost and highly-flexible platform.
Nasdaq has grown meaningfully over the years through a number of strategic expansions. Further, in its bid to evolve as a leading SaaS technology provider, it acquired Verafin this February. These deals have helped the company gain direct access to several global equities market, expand its technology offering and be accretive to its results.
Nasdaq remains focused on boosting growth via organic means and also constantly reviews its businesses to augment/diversify the top line. The company is on track regarding its goals of maximizing opportunities as an innovative analytics and technology partner in the capital markets, develop and deploy marketplace economy technology strategy and consolidate competitive edge in its core operations.
The company is also accelerating growth at its non-trading revenue base. Nasdaq projects 5-8% revenue organic growth at Investment Intelligence, 8-11% at Market Technology and 3-5% at Corporate Platforms over medium term.
Nasdaq has a market cap of $32 billion. So far this year, the stock has jumped 44%. The company’s earnings are expected to grow 18.8% for the current year.
Raymond James
Inorganic expansion initiatives and strong balance sheet will continue to support Raymond James’ revenues in the quarters ahead. As a diversified financial service provider, the company has been expanding its footprint globally.
In an intensely competitive operating environment, most of Raymond James’ businesses are performing relatively well. The company’s Private Client Group (PCG) segment, the largest revenue garner, is getting support from the acquisition of U.S. Private Client Services unit of Deutsche Asset & Wealth Management in 2016, which added a significant amount of client assets to its balance sheet.
Given a strong liquidity position, Raymond James has accomplished several strategic deals over the past few years. In May 2021, the company inked a deal to acquire Cebile Capital, while in March, it acquired a boutique investment bank, Financo. Also, it is expanded into Europe and Canada with the help of opportunistic buyouts. Management looks forward to actively growing through acquisitions with an aim to further strengthen its PCG and Asset Management segments.
With a market cap of $18.9 billion, the company’s earnings are expected to surge 64.5% for fiscal 2021. The stock has jumped 45.9% in the year-to-date period.
MetLife
As a provider of life insurance and other related services, MetLife has strong international presence. Despite the low interest rate environment, the company is witnessing rise in net investment income, driven by its private equity investments. For 2021, the company anticipates a variable investment income of $1.2-$1.4 billion, on the assumption that private equity will remain strong.
MetLife constantly streamlines its business lines, moving away from operations that do not create value. In June, it announced sale of its wholly-owned subsidiaries in Poland and Greece, while this April, the company closed the sale of MetLife Auto & Home. These, along with other similar initiatives, over the past few years, will transform MetLife into a company with less volatility and help generate more free cash flow over the long term.
Also, MetLife is growing through acquisitions, which is leading to business diversification. In January, it concluded the deal to acquire Versant Health for $1.7 billion, making it the third largest vision care provider in the United States. The company has forayed into the pet insurance space with the buyout of PetFirst.
MetLife has a market cap of $53.5 billion. The stock has rallied 31.6% so far this year. The company’s earnings are expected to grow 29.6% for 2021.
T. Rowe Price
Organic growth remains a key strength for T. Rowe Price, as reflected by its revenue growth story. The company remains focused on fortifying business through several planned initiatives largely tied with launching new investment strategies and vehicles, enhancing client engagement capabilities in each distribution channels, strengthening distribution channel across its footprint.
As a global investment management firm, T. Rowe Price has been able to sustain earnings supported by its diverse business model. Going forward, the mix shift toward international growth funds is also expected to help increase both revenue and investment management margin of the company. For the five-year period, ended Jun 30, 2021, 82% of the T. Rowe Price mutual funds assets under management throughout the share classes outperformed Morningstar median on a total return basis, while 79% surpassed passive peer median.
T. Rowe Price remains debt-free with substantial liquidity, which includes total cash and investments of $7.48 billion as of Jun 30, 2021. This has aided in strengthening the company’s capital leverage.
In the year-to-date period, the stock has surged 44.3%. With a market cap of $49.8 billion, the company’s earnings are expected to increase 34.8% for the current year.