Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. But uncertainty about fiscal and monetary policy has tempered enthusiasm, limiting the industry’s gains to 3.1% over the past six months. This return lagged the S&P 500’s 7.5% climb.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here are two financials stocks we think can generate sustainable market-beating returns and one we would avoid.
One financials stock to sell:
Encore Capital Group (ECPG)
Market cap: $2.17 billion
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ:ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Is ECPG Not Exciting?
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Annual revenue growth of 3.1% over the last five years was below our standards for the financials sector
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Low return on equity reflects management’s struggle to allocate funds effectively
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5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $101.65 per share, Encore Capital Group trades at 1.8x forward P/B. Read our free research report to see why you should think twice about including ECPG in your portfolio, it’s free.
Two financials stocks to watch:
BNY (BNY)
Market cap: $100.5 billion
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE:BNY) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Do We Like BNY?
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Decent 9.6% annual revenue growth over the last two years beat most of its peers, showing customers find value in its products and services
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Share repurchases over the last two years enabled its annual earnings per share growth of 27.9% to outpace its revenue gains
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Impressive 15.7% annual tangible book value per share growth over the last two years indicates it’s building equity value this cycle
BNY is trading at $150.11 per share, or 14.7x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
Synchrony Financial (SYF)
Market cap: $23.97 billion
Powering over 73 million active accounts and partnerships with major brands like Amazon, PayPal, and Lowe’s, Synchrony Financial (NYSE:SYF) provides credit cards, installment loans, and banking products through partnerships with retailers, healthcare providers, and digital platforms.
