Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. Market leaders have certainly capitalized on a favorable backdrop to boost profitability, helping fuel a 16% gain for the industry over the past six months - 5.1 percentage points higher than the S&P 500.
Although these firms have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from the incumbents. On that note, here is one financials stock poised to generate sustainable market-beating returns and two we’re passing on.
Two Financials Stocks to Sell:
FactSet (FDS)
Market Cap: $10.67 billion
Founded in 1978 when financial data was still primarily delivered through paper reports, FactSet (NYSE: FDS) provides financial data, analytics, and technology solutions that investment professionals use to research, analyze, and manage their portfolios.
Why Is FDS Not Exciting?
- Sales trends were unexciting over the last two years as its 5.8% annual growth was below the typical financials company
- Earnings per share lagged its peers over the last two years as they only grew by 5.9% annually
FactSet’s stock price of $299.80 implies a valuation ratio of 15.7x forward P/E. Read our free research report to see why you should think twice about including FDS in your portfolio.
Western Union (WU)
Market Cap: $2.28 billion
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE: WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Are We Bearish on WU?
- Sales tumbled by 3.2% annually over the last five years, showing market trends are working against it during this cycle
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 5.3% annually, worse than its revenue
Western Union is trading at $7.32 per share, or 5x forward P/E. To fully understand why you should be careful with WU, check out our full research report (it’s free).
One Financials Stock to Buy:
Visa (V)
Market Cap: $681.1 billion
Processing over 829 million transactions daily and connecting billions of cards to 150 million merchant locations worldwide, Visa (NYSE: V) operates one of the world's largest electronic payments networks, facilitating secure money movement across more than 200 countries through its VisaNet processing platform.
Why Will V Outperform?
- Solid 14.5% annual revenue growth over the last five years indicates its offerings solve complex business issues
- Performance over the past five years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue
- ROE punches in at 49.2%, illustrating management’s expertise in identifying profitable investments
At $371.27 per share, Visa trades at 25.3x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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