Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. Still, investors are uneasy as companies face challenges from an unpredictable interest rate and inflation environment. These doubts have certainly contributed to the indutry's recent underperformance - over the past six months, its 6% gain has fallen behind the S&P 500's 11.5% rise.
A cautious approach is imperative when dabbling in financials as many are sensitive to economic cycles and regulatory changes. On that note, here are three financials stocks we’re steering clear of.
MSCI (MSCI)
Market Cap: $43.48 billion
Originally known as Morgan Stanley Capital International before becoming independent in 2007, MSCI (NYSE: MSCI) provides critical decision support tools, indexes, and analytics that help global investors understand risk and return factors and build more effective investment portfolios.
Why Does MSCI Fall Short?
- Push for growth has led to negative returns on capital, signaling value destruction
MSCI’s stock price of $567.37 implies a valuation ratio of 31.3x forward P/E. If you’re considering MSCI for your portfolio, see our FREE research report to learn more.
Jefferies (JEF)
Market Cap: $13.34 billion
Tracing its roots back to 1962 and rebranded from Leucadia National Corporation in 2018, Jefferies Financial Group (NYSE: JEF) is a global investment banking and capital markets firm that provides advisory services, securities trading, and asset management to corporations, institutions, and wealthy individuals.
Why Does JEF Worry Us?
- Sales trends were unexciting over the last five years as its 4.1% annual growth was below the typical financials company
- Annual tangible book value per share declines of 3.8% for the past two years show its capital management struggled during this cycle
- Debt-to-equity ratio of 4.8× shows the firm has taken on excessive debt, leaving little room for error
At $62.80 per share, Jefferies trades at 14.2x forward P/E. Dive into our free research report to see why there are better opportunities than JEF.
Affirm (AFRM)
Market Cap: $27.41 billion
Founded by PayPal co-founder Max Levchin with a mission to create honest financial products, Affirm (NASDAQ: AFRM) provides a payment network that allows consumers to make purchases and pay for them over time with transparent, flexible installment loans.
Why Is AFRM Not Exciting?
- Negative return on equity shows management lost money while trying to expand the business
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Affirm is trading at $82.80 per share, or 25.2x forward P/E. Check out our free in-depth research report to learn more about why AFRM doesn’t pass our bar.
Stocks We Like More
Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
