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5 Finance Stocks to Buy Ahead of Q3 Earnings This Month

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The third-quarter 2021 earnings season has commenced this week, with the major banks releasing their quarterly financial numbers. Market participants have high expectations from this earnings season as overall earnings of corporate America are likely to remain robust after skyrocketing in the second quarter.

Impressive Start to Q3 Earnings Season

As of Oct 15, 41 S&P 500 companies reported third-quarter results. Total earnings of these companies are up 40.4% year over year on 13.4% higher revenues, with 85.4% beating EPS estimates and 70.7% surpassing revenue estimates.

Total third-quarter earnings of the market's benchmark — the S&P 500 Index — are projected to jump 29.4% from the same period last year on 14.1% higher revenues, following 95% year-over-year earnings growth on 25.3% higher revenues in the second quarter and 49.3% year-over-year earnings growth on 10.3% higher revenues in first-quarter 2021. (Read More: Into the Heart of Q3 Earnings Season)

The first two quarters of this year were favorably impacted since the corresponding quarters of last year were affected by the pandemic-led lockdowns and restrictions. Nevertheless, the U.S. economy started reopening partially albeit at a very slow pace since the third quarter of 2020. Notwithstanding favorable comparisons with last year, third-quarter 2021 earnings estimates reflect genuine growth, climbing 20% from the pre-pandemic third-quarter 2019.

A Glance at the Financial Sector in Q3

The third quarter was a good one for the financial sector despite the resurgence of the Delta variant of coronavirus and the precipitous supply-chain bottlenecks. The Financial Select Sector SPDR (XLF) — one of the 11 broad sectors of the market’s benchmark the S&P 500 Index — was up 2.7%. The sector benefited from the robust recovery of the U.S. economy and a spike in the yield curve of the U.S. government bonds due to higher inflationary pressure.

As of Oct 15, finance companies that consist of 40.6% of the sector’s market capital in the S&P 500 Index reported earnings results. Total earnings for these companies are up 42.2% year over year on 9.9% higher revenues, with 92.9% beating EPS estimates and 78.6% beating revenue estimates. The sector is likely to maintain this momentum for the rest of the companies.

Our Top Picks

We have narrowed down our search to five large-cap financial companies (market capital > $15 billion). These companies will report third-quarter 2021 earnings results this month. Each of our picks carries a Zacks Rank#2 (Buy) and a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The chart below shows the price performance of our five picks in the last quarter.

Zacks Investment ResearchImage Source: Zacks Investment Research

Capital One Financial Corp. (COF - Free Report) is primarily focused on consumer and commercial lending as well as deposit origination providing various financial products and services in the United States, the United Kingdom, and Canada. It operates through three segments: Credit Card, Consumer Banking and Commercial Banking.

The company's Credit Card segment is likely to continue showing strength. In the first half of 2021, Domestic Card, which accounted for 92.2% of the Credit Card net revenues, reflected robust loans held for investment balance.

The company has an Earnings ESP of +5.18%. It has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the last 7 days. It recorded earnings surprises in the last four reported quarters, with an average beat of 92.3%. The company is set to release earnings results on Oct 26, after the closing bell.

Ameriprise Financial Inc. (AMP - Free Report) is a leading asset management company. It operates through five segments: Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. The deal to buy BMO's EMEA asset management business will likely be earnings accretive. Given a solid balance sheet, its capital deployments seem sustainable.

The company is likely to accelerate top-line growth, given its robust asset balances, a diversified investment portfolio and business-restructuring initiatives (including the sale of the Auto & Home division, and the launch of banking and credit products).

The company has an Earnings ESP of +1.10%. It has an expected earnings growth rate of 54.5% for the current year. It recorded earnings surprises in the last four reported quarters, with an average beat of 6.6%. The company is set to release earnings results on Oct 26, after the closing bell.

Ares Management Corp. (ARES - Free Report) is a global alternative asset manager operating in the United States, Europe, and Asia. It manages four investment groups that invest in the tradable credit, direct lending, and private equity and real estate markets.

The company's Tradable Credit Group segment manages various investment funds, like commingled and separately managed accounts. Its Direct Lending Group segment provides financing solutions to small-to-medium-sized companies. The Private Equity Group segment focuses on the majority or shared-control investments primarily in under-capitalized companies. Its Real Estate Group segment invests in new developments and the repositioning of assets.

The company has an Earnings ESP of +3.53%. It has an expected earnings growth rate of 31.7% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the last 30 days. It recorded earnings surprises in the three out of last four reported quarters, with an average beat of 13.1%. The company is set to release earnings results on Oct 27, before the opening bell.

Aflac Inc. (AFL - Free Report) continues to maintain strong risk-adjusted capital at its operating subsidiaries supported by consistent earnings and good liquidity. Its U.S segment is poised to grow from the buyout of Argus Dental and Vision and Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business. A robust product pipeline for 2021 is likely to boost the segment’s sales.

The company has an Earnings ESP of +1.44%. It has an expected earnings growth rate of 13.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.2% over the last 7 days. It recorded earnings surprises in the last four reported quarters, with an average beat of 19.9%. The company is set to release earnings results on Oct 27, after the closing bell.

The Carlyle Group Inc. (CG - Free Report) is one of the world’s largest global investment firms that originates, structures and acts as a lead equity investor in management-led buyouts, strategic minority equity investments, equity private placements, consolidations and buildups, bank loans, high-yield debt and other investment opportunities.

Growth in assets under management balance and fund management fees are likely to drive the company's performance in the upcoming period. Carlyle aims to double its distributable earnings in the next three years. Efforts to expand operations by entering business avenues such as insurance and capital markets are likely to drive the top line.

The company has an Earnings ESP of +9.71%. It has an expected earnings growth rate of 65.4% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.4% over the last 7 days. It recorded earnings surprises in the three out of last four reported quarters, with an average beat of 27.1%. The company is set to release earnings results on Oct 28, before the opening bell.