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 caused the industry to lag recently as financials stocks have collectively shed 2.4% over the past six months. This performance was disappointing since the S&P 500 climbed 6.1%.
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:
Oaktree Specialty Lending (OCSL)
Market Cap: $1.06 billion
Managed by Oaktree Capital Management, one of the world's premier alternative investment firms, Oaktree Specialty Lending (NASDAQ: OCSL) is a business development company that provides customized financing solutions to mid-market companies across various industries.
Why Do We Steer Clear of OCSL?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 13.2% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 18.9% annually, worse than its revenue declines
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 5.9% annually over the last five years
Oaktree Specialty Lending is trading at $11.75 per share, or 8.3x forward P/E. To fully understand why you should be careful with OCSL, check out our full research report (it’s free).
Two Financials Stocks to Buy:
Visa (V)
Market Cap: $601.1 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 Is V a Top Pick?
- Impressive 15% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Share repurchases have increased shareholder returns as its annual earnings per share growth of 20.1% exceeded its revenue gains over the last five years
- Market-beating return on equity illustrates that management has a knack for investing in profitable ventures
Visa’s stock price of $341.38 implies a valuation ratio of 24.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Tradeweb Markets (TW)
Market Cap: $21.08 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.
Why Are We Backing TW?
- Annual revenue growth of 23.4% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 23.5% annually
At $93.88 per share, Tradeweb Markets trades at 22.8x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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