Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. Furthermore, supportive sentiment has created ideal market conditions, a trend that has enabled the industry to return 18.2% over the past six months. At the same time, the S&P 500 was up 14.2%.
Nevertheless, investors should tread carefully as many firms are cyclical due to their leverage and exposure to regulatory changes. Keeping that in mind, here is one resilient financials stock at the top of our wish list and two we would avoid.
Two Financials Stocks to Sell:
Cohen & Steers (CNS)
Market Cap: $3.81 billion
Founded in 1986 as a pioneer in real estate investment trusts (REITs), Cohen & Steers (NYSE: CNS) is an investment manager specializing in real estate securities, infrastructure, real assets, and preferred securities for institutional and individual investors.
Why Do We Avoid CNS?
- Annual revenue growth of 3.2% over the last five years was below our standards for the financials sector
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
Cohen & Steers is trading at $74.12 per share, or 20.4x forward P/E. Read our free research report to see why you should think twice about including CNS in your portfolio.
Sallie Mae (SLM)
Market Cap: $4.96 billion
Originally created as a government-sponsored enterprise before privatizing in 2004, Sallie Mae (NASDAQ: SLM) is a financial services company that provides private education loans, savings products, and educational resources to help students and families pay for college.
Why Is SLM Risky?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Sales over the last five years were less profitable as its earnings per share fell by 1.5% annually while its revenue was flat
Sallie Mae’s stock price of $26.42 implies a valuation ratio of 8.4x forward P/E. To fully understand why you should be careful with SLM, check out our full research report (it’s free).
One Financials Stock to Buy:
Shift4 (FOUR)
Market Cap: $3.58 billion
Starting as a payment gateway provider in 1999 and now processing over $200 billion in annual payment volume, Shift4 Payments (NYSE: FOUR) provides integrated payment processing solutions and software that help businesses accept and manage transactions across in-store, online, and mobile channels.
Why Is FOUR a Top Pick?
- Annual revenue growth of 28.1% over the last two years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 31.9% over the last two years outstripped its revenue performance
- Industry-leading 16.1% return on equity demonstrates management’s skill in finding high-return investments
At $44.65 per share, Shift4 trades at 8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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