Being the largest financial service market in the world, Wall Street has been taking advantage of the positive momentum in the global economy and setting new trends. It is estimated that banking, finance, and insurance together generated total revenues of $4.73 trillion in 2020. Combined, financial services and insurance employed more than 7.3 million people at the end of last year.
Over the past year, financial stocks often outperformed the broad market, offering investors an average return of 83.3% that is much higher compared to the Russell 1000 index. While 2020 was recognized by stimulus funding, low interest rates, and credit concerns, 2021 will presumably see a revival of the U.S. economy.
Financial service stocks were among the hardest-hit investment instruments during the pandemic. But, here are three stocks that managed to recover and have the potential to help your portfolio generate better returns.
JPMorgan Chase (NYSE: JPM) is the largest US bank in terms of asset value. At the current price, the company’s stock is a good value investment since it has appreciated more than three-fold from the beginning of 2010 to the end of 2020. JPMorgan has performed better than its peers during recessions and the trend was maintained during the pandemic also.
The New York-based investment bank reported strong first-quarter results as the management released $5.2 billion of credit loss reserves. The stock is expected to get a further boost from the planned $30-billion share buyback. Analysts expect JPMorgan’s earnings to grow 30% this year.
With a market value of around $463.5 billion, JPMorgan is considered a one-stop financial shop. The company’s earnings continue to benefit from the improving macro conditions. Together, these factors make the stock a good buy.
Credit card giant Visa (NYSE: V), which operates the world’s largest payment network, finished the second half of 2020 with a solid 20.7% gain on the stock exchange.
The San Francisco-based payment services provider has gained more than 60% on Wall Street since last year. The impact of the Covid-19 crisis caused a 5% y-o-y drop in 2020. The company recently shared its first-quarter results of 2021 wherein the net revenue was at $5.7 billion. Amid expectations that the U.S. economy would rebound, Visa’s revenue is seen rising 7% this year to $23 billion.
The company’s P.E multiple rose to 40x from 32x last year, which means it has a good potential to grow in the future.
S&P Global (NYSE: SPGI) is probably the biggest contender for the Best Financial Stock title. Its market intelligence business has been consistently growing, and it tends to do well in down markets at a time when investors seek more information and data. The market value of the New York-based financial information and analytics company more than tripled in the past five years. In February, S&P Global reported its 2020 financial results. Full-year revenue moved up 11% to $7.44 billion, while net income rose 10% to $2.34 billion.
Recently, the company entered into a merger agreement with IHS Markit — the stock-for-stock transaction is expected to close in the third quarter of 2021. S&P Global has recorded double-digit annualized earnings growth and strong operating margins of over 50% over the past 10 years, while IHS Markit brings $4.8 billion of debt.
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