Financial institutions play a critical role, offering everything from consumer banking to wealth management and specialized financial solutions. But uncertainty about fiscal and monetary policy has tempered enthusiasm, limiting the industry’s gains to 3.3% over the past six months. This return lagged the S&P 500’s 7.2% climb.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. 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:
Atlanticus Holdings (ATLC)
Market cap: $1.42 billion
Using data analytics to serve the millions of Americans with less-than-perfect credit scores, Atlanticus Holdings (NASDAQ:ATLC) provides technology and services that help lenders offer credit products to consumers often overlooked by traditional financing providers.
Why Are We Cautious About ATLC?
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Flat earnings per share over the last four years lagged its peers
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High net-debt-to-EBITDA ratio of 28× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Atlanticus Holdings is trading at $93.44 per share, or 8.5x forward P/E. To fully understand why you should be careful with ATLC, check out our full research report (it’s free).
Two financials stocks to buy:
Happen Bank (HAPN)
Market cap: $1.79 billion
Pioneering peer-to-peer lending in the US before evolving into a digital bank, Happen Bank (NASDAQ:HAPN) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.
What Makes HAPN Stand Out?
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Annual revenue growth of 17.6% over the last two years was superb and indicates its market share increased during this cycle
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Incremental sales over the last two years have been highly profitable as its earnings per share increased by 96.5% annually, topping its revenue gains
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Management team has demonstrated it can invest in profitable ventures through its 12.1% five-year return on equity
Happen Bank’s stock price of $15.54 implies a valuation ratio of 7.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Tradeweb Markets (TW)
Market cap: $25.62 billion
Founded in 1996 as one of the pioneers in electronic bond trading, Tradeweb Markets (NASDAQ:TW) builds and operates electronic marketplaces that connect financial institutions for trading across rates, credit, equities, and money markets.
