In this article, we discuss the top 10 financial stocks to invest in.
One of the main drivers of the global economy, the financial sector, consisting of banks, investment firms, insurance companies, and fintech corporations, has seen massive changes in the past few years and is already evaluating the economic changes brought about by COVID-19 and their impact on the post-pandemic world. According to the Financial Services Global Market Report 2021, the financial services market is likely to reach $22.5 trillion, growing at a compound annual growth rate (CAGR) of 9.9% from the previous year, and further expected to reach $28.5 trillion by 2025. With global Gross Domestic Product (GDP) expected to reach $93 trillion in 2021, financial services comprise about 24% of the world’s economy.
As such, a number of investors have decided to benefit from exposure to the economic recovery. With over $32 billion having been poured into the broad financial stocks by investors looking to make a hefty profit, opinions around investing in banking and finance are becoming more optimistic, with some investors looking for short-term gains, while others are choosing to stay for the long run.
Some of the best financial stocks on the market to watch out for in this regard include Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), PayPal Holdings, Inc. (NASDAQ:PYPL), and JPMorgan Chase & Co. (NYSE:JPM), among others discussed in detail below.
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Our Methodology
Let us now analyze our list of the top 10 financial stocks to invest in. For our list, we made use of hedge fund sentiment, positive analysts’ ratings, and fundamentals while choosing these stocks, ranking them according to the number of hedge funds that held stakes in the companies as of the end of the second quarter.
Why should we pay attention to hedge fund sentiment while choosing stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Top 10 Financial Stocks To Invest In
10. Global Payments Inc. (NYSE:GPN)
Number of Hedge Fund Holders: 66
Global Payments Inc. (NYSE:GPN) operates as a markets payments technology and software solutions company based in Atlanta, Georgia.
Of the 873 elite funds being tracked by Insider Monkey, 66 reported holding stakes in Global Payments Inc. (NYSE:GPN) at the end of the second quarter of 2021, up from 62 funds in the preceding quarter. Alexander Becker of Codex Capital is the leading stakeholder in the company, with 24,900 shares worth more than $4.66 billion.
On September 9, BMO Capital analyst James Fotheringham raised his price target on Global Payments Inc. (NYSE:GPN) to $217 from $206, and kept an Outperform rating on the shares of the company.
In its Q2 2021 investor letter, Carillon Tower Advisers mentioned Global Payments Inc. (NYSE:GPN). Here is what the fund said:
“Global Payments is a payments technology company delivering innovative payments and software solutions that allow customers to operate their businesses more efficiently. Investors have been disappointed at the pace of the revenue acceleration given the uneven nature of the reopening globally. The U.S. is doing well with issues, but Europe and Asia remain in various stages of reopening and lockdowns and thus, spending has been curtailed. However, we believe that the U.S. is leading the way and as vaccines are rolled out worldwide, Global Payments stands to benefit in the second half of this year and into 2022.”
9. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 69
Morgan Stanley (NYSE:MS) is a multinational investment banking and financial services company based in New York. The company provides its financial products and services to a range of customers across the globe.
By the end of the second quarter of 2021, 69 hedge funds out of the 873 tracked by Insider Monkey held stakes in Morgan Stanley (NYSE:MS) worth roughly $5.34 billion.
Out of the hedge fund’s being tracked by Insider Monkey, Boykin Curry’s Eagle Capital Management was the biggest stakeholder in Morgan Stanley (NYSE:MS) at the end of the second quarter, with over 15.4 million shares worth more than $1.42 billion.
On October 18, Citi analyst Keith Horowitz raised the price target on Morgan Stanley (NYSE:MS) to $105 from $100, and kept a Neutral rating on its shares, following what he deemed another “strong” quarter for the company.
ClearBridge Investments, an investment management firm, mentioned Morgan Stanley (NYSE:MS) in its Q2 2021 investor letter. Here is what the fund said:
“The Strategy also benefited from strong showings from financials holdings such as recent addition Morgan Stanley, a leading bank holding company offering a variety of financial services worldwide, and one of the largest broker-dealers, investment banks and wealth managers in the U.S. Morgan Stanley has been a leader in helping direct capital to address global sustainability challenges. Its sustainability efforts include capital markets actions such as issuing green bonds and it was early in its support for sustainability in investing and its concern for the environment. Morgan Stanley reported a great quarter with record revenues and strength across the businesses as it works to integrate and find synergies with recent acquisition E*TRADE. Following stress tests for banks, Morgan Stanley increased its dividend and share repurchase plan more than expected.”
8. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 72
The Charles Schwab Corporation (NYSE:SCHW) is a multinational financial services company that offers commercial banking, asset management and wealth management services. Shares of the company have doubled over the past 12 months.
By the end of the second quarter of 2021, 72 hedge funds out of the 873 tracked by Insider Monkey held stakes in The Charles Schwab Corporation (NYSE:SCHW) worth roughly $4.85 billion.
On October 26, Morgan Stanley analyst Michael Cyprys raised the price target on The Charles Schwab Corporation (NYSE:SCHW) to $115 from $97, and kept an Overweight rating on the shares of the company.
Robert Koehn of Ivy Lane Capital is the biggest stakeholder in The Charles Schwab Corporation (NYSE:SCHW), with 164,000 shares worth more than $11.9 billion.
Lakehouse Capital, an investment management firm, releases its Q2 2021 investor letter and mentioned The Charles Schwab Corporation (NYSE:SCHW) in it. Here is what the firm has to say:
“Charles Schwab is not a household name in Australia but it is in the US where it is the largest discount broker with more than 32 million brokerage accounts, 2 million corporate retirement plans, and total client assets of US$7.4 trillion. Schwab’s shares performed extremely well during the year thanks to a confluence of factors including a strong stock market with the S&P 500 up 39% year-on-year, the company’s recent merger with industry heavyweight TD Ameritrade, and expectations that interest rate income would grow as the US economy gained steam.
Two other important contributors to Schwab’s year, which were a mix of cyclical and structural, were an increase in net new accounts and increased trading activity. We view these as cyclical in the sense that markets are performing very well and that retail investors have been bored and emboldened during the American lockdowns, however, also structural because Schwab’s shift to $0 commissions on equity trades has permanently reduced a barrier to trading for investors with smaller accounts. We also note that, while brokerage activity is cyclical, the average brokerage account itself is very sticky — we estimate normalised annual retention rates for accounts of better than 93% — and that the average client assets per account grow over time thanks to asset growth and clients collectively being net savers.
Schwab makes for an excellent natural hedge for the Fund as Schwab tends to perform well when interest rates increase, which is generally negative for the rest of the portfolio. And the position did its job for us by increasing during a rising interest rate environment, enabling us to harvest much of our gains from Schwab and redeploy them to shares of other growth companies that had gotten cheaper in response to higher rates. We’re mindful of the run in the shares and the cyclical nature of the business but comfortable keeping a small position for now given Schwab’s natural hedging dynamics, extremely loyal customers, and an industry-leading position in a growing market.”
7. Citigroup, Inc. (NYSE:C)
Number of Hedge Fund Holders: 87
Citigroup, Inc. (NYSE:C) is a New York-based multinational investment banking and financial services corporation that operates in the diversified banks and financial services industry.
On October 15, BMO Capital analyst James Fotheringham raised his price target on Citigroup, Inc. (NYSE:C) to $86 from $84, and kept an Outperform rating on the shares of the company.
Irving Kahn of Kahn Brothers is one of the biggest stakeholders of Citigroup, Inc. (NYSE:C) as of the end of the second quarter, according to the data tracked by Insider Monkey. Overall, 87 funds were bullish on the company by the end of the June quarter, compared to 90 in the previous quarter.
Besides Visa Inc. (NYSE: V), Mastercard Incorporated (NYSE: MA), PayPal Holdings, Inc. (NASDAQ: PYPL), and JPMorgan Chase & Co. (NYSE: JPM), Citigroup, Inc. (NYSE:C) is a decent stock to invest in.
6. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 87
Bank of America Corporation (NYSE:BAC) is a multinational bank and financial services holding company based in North Carolina. The company’s shares climbed 2.5% following the release of its Q3 earnings report.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $46 billion in Bank of America Corporation (NYSE: BAC).
On October 25, Wells Fargo analyst Mike Mayo raised the price target on Bank of America Corporation (NYSE:BAC) to $60 from $55, and maintained an Overweight rating on the company’s shares.
Oakmark Funds, in its Bill Nygren third-quarter 2021 market commentary, mentioned Bank of America Corporation (NYSE:BAC). Here is what the fund had to say:
“Earlier this year, one of our holdings, Bank of America, announced that it was raising its minimum hourly wage from $15 to $20 and would increase it to $25 by 2025. The company received great press for placing the well-being of its employees above profits. But was it really either/or? Bank of America’s chief human resources officer spoke to the bigger picture: “A core tenet of responsible growth is our commitment to being a great place to work…that includes providing strong pay and competitive benefits to help them and their families, so that we continue to attract and retain the best talent.” Bank of America understood that engaged, high-caliber employees are more productive, less prone to turnover and, therefore, less expensive in the long run. Increasing the pay for employees wasn’t elevating employees above shareholders; it was the right thing to do for employees and for shareholders.
If an increase to $20 was good, why stop there? Why not $50 per hour? Because the benefits the business receives at $50 don’t justify the expense. The bank would no longer be able to price its products competitively and would lose business. The employees would “win” in the short term, but eventually the lost business would lead to job cuts, meaning both employees and shareholders would lose. The negative effects of stakeholder overreach are no different than when CEOs overreach to inflate short-term profits. Both hurt shareholders and stakeholders.”
5. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 94
Wells Fargo & Company (NYSE:WFC) is a financial services company that provides a range of products and services, including banking, insurance, mortgage and leasing services, among numerous others. The company rebuilt its mobile banking experience for consumer and small business customers, with an all-new virtual assistant, Fargo, to be added later in 2022.
On October 15, Piper Sandler analyst Scott Siefers raised his price target on Wells Fargo & Company (NYSE:WFC) to $48 from $45, and kept a Neutral rating on the shares.
At the end of the second quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $7 billion in Wells Fargo & Company (NYSE:WFC), down from 96 in the previous quarter worth $7.4 billion. Out of the hedge funds being tracked by Insider Monkey, Boykin Curry’s Eagle Capital Management is the leading stakeholder in the company, holding over 34.9 million shares worth more than $1.58 billion.
L1 Capital, in its second-quarter 2021 investor letter, mentioned Wells Fargo & Company (NYSE:WFC). Here is what the fund said:
“Wells Fargo (Long +16%) was the strongest contributor to portfolio performance over the quarter. Wells Fargo shares rallied given a better outlook for bad debts driven by improving employment and house price trends. The company had been very undervalued due to excessive fears around likely bad debts due to the pandemic, the continued regulatory “asset cap” (a punishment that was put in place in 2017 for numerous compliance failures) and an inability to commence buybacks. The share price has subsequently recovered strongly in recent months as the company has progressed its turnaround program under the leadership of the well-regarded CEO, Charles Scharf (former CEO of Visa and BNY Mellon). Wells Fargo is now closer to getting the asset cap lifted and has announced a huge cost out program (US$8b+) as well as an $18b buyback program to be completed over the next 12 months. Wells Fargo shares have rallied more than 50% since we initiated the position in late 2020. Given the strong rally, we elected to exit our position and rotate into stocks with larger valuation upside.”
4. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 108
JPMorgan Chase & Co. (NYSE:JPM) is a New York-based multinational financial services and investment banking corporation that provides financial advisory services and solutions to countries around the world. Earlier on October 22, the company announced the launch of Digital Bill Payment, a platform based around customer engagement, bill presentment and payments.
Of the 873 elite funds tracked by Insider Monkey, 108 were long in JPMorgan Chase & Co. (NYSE:JPM) at the end of June, compared to 111 in the first quarter of 2021. Ken Fisher’s Fisher Asset Management is a leading shareholder in the company.
On October 25, Wells Fargo analyst Mike Mayo raised the price target on JPMorgan Chase & Co. (NYSE:JPM) to $210 from $200, and maintained an Overweight rating on the shares, citing confidence in the company’s earnings capacity and consistency.
3. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 143
PayPal Holdings, Inc. (NASDAQ:PYPL) is a multinational financial technology company that operates an online payments system in a number of countries that support online money transfers, as well as serves as an electronic alternative to traditional paper methods such as checks and money orders.
After the it announced that it would not pursue an acquisition of Pinterest, Inc.(NYSE:PINS) on October 25, the company’s shares jumped by 6%.
On October 20, Keefe Bruyette analyst Sanjay Sakhrani maintained an Outperform rating on PayPal Holdings, Inc. (NASDAQ:PYPL), alongside a $340 price target on its shares,
At the end of the second quarter of 2021, 143 hedge funds in the database of Insider Monkey held stakes worth $16.3 billion in PayPal Holdings, Inc. (NASDAQ:PYPL). The number of hedge funds with stakes in the company remained unchanged for the first and second quarter. Alexander Becker of Codex Capital is the leading shareholder in the company, with 32,900 shares worth more than $9.59 billion.
Qualivian Investment Partners mentioned PayPal Holdings, Inc. (NASDAQ:PYPL) in their Q2 2021 investor letter and discussed its stance on the firm. Here’s what the fund said:
“PayPal: The company reported a slightly disappointing quarter with revenues growing 19%, missing on the average revenue per transaction due to the accelerated decline in eBay transactions, the higher mix of Braintree transactions, and other impacts from hedging and F/X translations. Given the stock’s significant outperformance in 2020 and heightened expectations coming into the quarter, the stock has been consolidating since the earnings report. Long term we remain bullish on PayPal, given the company’s continued growth in eCommerce end markets, as well as the continued share gains of digital payments/wallets over paper payments.”
2. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 156
Mastercard Incorporated (NYSE:MA) is a New York-based multinational financial services company that engages in the provision of transaction processing and other payment-related products and services.
Warren Buffett’s Berkshire Hathaway is one of the biggest stakeholders of Mastercard Incorporated (NYSE:MA) as of the end of the second quarter, according to the data tracked by Insider Monkey. Overall, 156 funds were bullish on Mastercard Incorporated (NYSE:MA) by the end of the June quarter, compared to 154 in the preceding quarter.
On August 17, JPMorgan analyst Tien-tsin Huang raised the price target on Mastercard Incorporated (NYSE:MA) to $430 from $427, and kept an Overweight rating on the shares of the company.
Qualivian Investment Partners, in its Q2 2021 investor letter, mentioned Mastercard Incorporated (NYSE:MA). Here is what the firm has to say about the company:
“Mastercard: Q2 revenue and EPS beat consensus estimates by 3.7% and 12% respectively. Operating margins also beat consensus by +240 bps. Gross domestic volume growth of +38.3% (+32.8% in constant currency) was buttressed by continued e-commerce strength and better in-store performance, while purchase volumes grew 41.8% (35.5% in constant currency). Cross border performance was strong, but durability remains uncertain given uncertainty arising from the Delta variant and its impact on travel and tourism. We believe Mastercard has a robust runway for growth given further travel recovery, new/existing partnerships, traction in digital payments, and ongoing economic recovery.”
1. Visa, Inc. (NYSE:V)
Number of Hedge Fund Holders: 162
Visa, Inc. (NYSE:V) is a California-based multinational financial services company engaged in the provision of electronic funds transfer across the globe.
As of the end of the second quarter, 162 hedge funds tracked by Insider Monkey reported owning stakes in Visa, Inc. (NYSE:V). The total worth of these stakes is $27.6 billion. This is compared to 164 funds that had stakes in the company in the previous quarter, with a total worth of $26.5 billion. Alexander Becker of Codex Capital is the leading stakeholder of the company.
On October 28, Morgan Stanley analyst James Faucette kept an Overweight rating and $280 price target on Visa, Inc. (NYSE:V) shares.
In its Q1 2021 investor letter, ClearBridge Investments mentioned Visa Inc. (NYSE:V). Here is what the fund said:
“To make room for these new names with more attractive outlooks related to the reopening, we sold out of companies where the thesis is not playing out at the pace we expected including Visa.”
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Disclosure. None. Top 10 Financial Stocks To Invest In is originally published on Insider Monkey.
