On January 21, Morgan Stanley shared its 2026 market outlook, highlighting key catalysts and risk factors. The firm’s Global Investment Committee has projected almost double‑digit returns for the S&P 500 Index, marking the fourth consecutive year of bullish momentum.
Despite AI-driven prospects and expectations of an additional 50 basis points of rate cuts by the Fed, which would fuel market growth, the firm highlighted headwinds. It noted that political and geopolitical risks should not be ignored by investors. It also attributed some complacency in forecasts to currently stretched valuations, which need to be factored in. The report highlights:
“At the heart of investor optimism is a highly bullish forecast: Analysts are projecting 14% to 16% annual earnings-per-share (EPS) growth in 2026. To put that in perspective, for the 493 stocks in the S&P 500 other than “Magnificent 7” mega-cap tech companies, this estimate would represent a doubling in the pace of earnings growth compared to 2025.” It further states, “That sets a very high bar and leaves the market with a razor‑thin margin for error. With equity valuations already rich and the 10 largest stocks in the index accounting for about 40% of its total value, any disappointment in earnings could quickly knock markets off balance.”
While risks exist, Morgan Stanley’s Global Investment Committee advised focusing on quality stocks in sectors such as financials, healthcare, and materials.
That said, without a doubt, conventional financial services businesses, such as retail & wholesale banks, AMCs, and insurance houses, offer distinct advantages for investors. The sector is known for attractive payouts and relative outperformance during good economic times. But with looming uncertainties, many investors have been liquidating their holdings of underlying stocks. This creates attractive entry points across the segment.
With that background, let’s explore our 12 Oversold Financial Stocks to Invest In According to Hedge Funds.
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Our Methodology
To identify relevant stocks for this article, we screened U.S.-listed financial companies with market capitalizations above $2 billion and with share prices above $5. We further narrowed our search to stocks with a Relative Strength Index (RSI) below 30 and shortlisted those with at least 15% upside potential according to TipRanks consensus, as of the February 13 closing.
In the final part of the screening, we identified the number of hedge funds that held positions in these stocks as of the end of the third quarter of 2025. Finally, we selected 12 stocks with the highest number of hedge funds holding stakes and ranked them in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
12. Assurant Incorporated (NYSE:AIZ)
Number of Hedge Fund Holders: 32
Assurant Incorporated (NYSE:AIZ) is one of the 12 oversold financial stocks to invest in according to hedge funds.
On February 12, Charlie Lederer from BMO Capital maintained his Outperform rating on Assurant Incorporated (NYSE:AIZ). He reduced the price target from $255 to $246, following the company’s fourth quarter announcement and guidance. The analyst believes that management’s guidance won’t lead to substantial adjustments to prior estimates.
On February 11, Assurant Incorporated (NYSE:AIZ) announced $3.35 billion in revenue for the fourth quarter, beating the market expectation of $3.28B. Assurant’s President and CEO, Keith Demmings, stated:
“Our 2025 performance underscores the position of strength from which Assurant Incorporated (NYSE:AIZ) continues to operate, delivering our ninth consecutive year of profitable growth. The strength and resilience of our results reflect the power of our diversified business model and our relentless focus on serving clients and creating value for shareholders. Sustained investments in innovation have transformed our operations and product offerings, supporting our partners, driving efficiencies and elevating the customer experience. The results are clear: new and expanded partnerships with leading global brands; differentiated, technology-enabled solutions; and continued growth in attractive, expanding markets – including the recent launch of Assurant Home Warranty – all underpinned by strong financial outperformance.”
Assurant Incorporated (NYSE:AIZ) delivers protection and support services to connected devices, homes, and automobiles. It offers mobile device protection, financial services, insurance products, vehicle protection, and other related services. The company also engages with leading brands for device lifecycle management and property technology solutions.
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