We recently compiled a list of the 10 Best Financial Services Stocks To Buy According to Analysts. In this article, we are going to take a look at where Royal Bank of Canada (NYSE:RY) stands against the other best financial services stocks to buy according to analysts.

According to the Financial Industry Index, which increased by more than 30% by mid-December and beat the overall market by about 5 percentage points, 2024 was a spectacular year for the financial industry. This growth followed concerns about mid-sized bank collapses in early 2024, which proved to be isolated incidents rather than an issue impacting the industry as a whole.

Meanwhile, as we have mentioned in our article, 10 Best Financial Stocks To Buy According to Hedge Funds, the market for financial services has expanded significantly in the last several years and is further expected to grow at a compound annual growth rate (CAGR) of 7.7% in the next few years.

Amidst the growth, as per EY’s report, the financial services industry is also undergoing a change because of artificial intelligence, particularly generative AI, which boosts productivity, modifications, and innovation. AI is helping banks provide individual solutions and improve risk control while accelerating processes like fraud detection, loan processing, and customer support. Large financial institutions are using AI to lower expenses, improve compliance, and create new products like automated tax compliance and predictive analytics. Nonetheless, issues like data privacy, rules of conduct, and AI’s “black box” decision-making continue to exist. Notwithstanding these obstacles, artificial intelligence is revolutionizing financial services by spreading beyond banking to include wealth management, insurance, and payments.

According to IBM’s report 2024, Generative AI is revolutionizing financial services by improving customer satisfaction and propelling advancements in risk assessment as well as personalized financial solutions. Secondly, the use of hybrid clouds is growing as companies seek to boost compliance, scalability, and efficiency. Thirdly, cybersecurity is still crucial, with growing investment in fraud detection systems as AI-driven threats emerge. Businesses are putting a greater spotlight on sustainability by giving green financial products and ESG initiatives top priority. By utilizing AI technologies such as Watsonx Assistant, customer experience management (CXM) increases customer pleasure and loyalty. Moreover, the use of open banking is growing as a result of APIs’ ability to simplify procedures and provide customers with more control over their data. Secure online transactions are being reinforced by the resurgence of digital currencies and blockchain.

Looking ahead, Deloitte’s 2025 investment management outlook predicts that AI, digital transformation, and changing investor demands will quickly impact the investment management industry in 2025. Low-cost funds are dominant, with active management flourishing within ETFs. Sustainability-focused investments, hybrid funds, and private financing are important growth areas. AI has exceeded expectations and is transforming operations and sales, but companies that are not embracing it quickly could fall behind. Regulatory changes, cybersecurity, and the combination of traditional and alternative assets are examples of growing risks. While some companies may find it difficult to survive in a high-risk, high-reward environment, bold companies that use AI and diversify their products may benefit from these changes. The key to success is scaling innovation and satisfying the need for sustainable, affordable solutions.

On the other hand, Deloitte’s 2025 banking and capital markets outlook report stated that banks can strengthen their basis for sustainable growth with creativity and discipline as the banking industry adjusts to a low-growth, lower-rate environment. It is anticipated that GDP growth will be 1.5% in 2025, and inflation will be approaching the 2% target, presenting a low-growth, lower-rate scenario for US banks. With savings exhausted by March 2024 and debt reaching $17.7 trillion, consumer spending may decline. Net interest margins may be compressed as a result of declining interest rates, with the federal funds rate falling to 350-375 basis points. Noninterest income presents opportunities, but growing salaries and technology expenditures drive up costs. Credit quality may slightly improve but is expected to stabilize. As geopolitical and regulatory uncertainty further complicate the picture, Deloitte observes that weak business investment and higher deposit costs will test banks’ adaptability.

Methodology

We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial services stocks. From the resultant dataset, we chose 10 stocks with a projected upside potential of over 7% based on analyst price targets, as of January 9. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.

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 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

Royal Bank of Canada (NYSE:RY)

Upside Potential as of January 9: 28.63% 

The Royal Bank of Canada (NYSE:RY) is one of the six banks that hold roughly 90% of all bank deposits in Canada and is one of the two biggest banks in terms of assets. The United States makes up the majority of the bank’s remaining revenue, with Canada contributing two-thirds. It has done an outstanding job of expanding its nonbank business, efficiently running its banking activities, and generating some of the highest returns for stockholders in the industry.

Royal Bank of Canada (NYSE:RY) offers a variety of financial services, including corporate banking, wealth management, insurance, capital markets, and personal and commercial banking. The bank is mostly focused on Canada, although it also operates in the US and other countries. RBC’s global wealth management and capital market reach generate an extensive revenue stream.

For the fourth quarter of 2024, Royal Bank of Canada (NYSE:RY) reported earnings of $4.2 billion, with adjusted earnings rising 18% year over year to $4.4 billion. Its Wealth Management division achieved a significant milestone when global assets under administration topped $2 trillion for the first time, and Canadian wealth management AUA grew by 26% over the same period last year. The acquisition of HSBC Canada resulted in run-rate savings of over $400 million and increased quarterly earnings by $265 million. Furthermore, the bank reported record revenue in Corporate Investment Banking and Global Markets during the fourth quarter, and its pre-provision pretax earnings rose 14% year over year.

Royal Bank of Canada (NYSE:RY)’s quarterly dividend increased by $0.06, or 4%, reflecting its solid performance. It is a leading bank stock in terms of growing dividends. Over the last ten years, the bank has been able to raise payouts despite market crises and the pandemic.

Argus affirmed its Buy rating on Royal Bank of Canada (NYSE:RY) shares and increased their price target from $132 to $140. In a research note, the analyst informed investors that the company is still competitive, with a solid wealth management franchise and a growing market share in Canadian banking. Argus further stated that the $400 million run-rate annualized savings with HSBC Bank Canada, which was purchased in March 2024, is on target to reach the $740 million total by March 2026.

Rajiv Jain’s GQG Partners was the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 5.75 million shares worth $717.89 million as of Q3.

Overall,  RY ranks 1st on our list of the best financial services stocks to buy according to analysts. While we acknowledge the potential for RY to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.