I am a London-based financial writer and editor with a goal to make complex ideas in finance and economics accessible to everyone through plain English…
Financial stocks include commercial banks, investment banks, asset management firms, and insurers, practically any company that makes money from someone else’s money. The current economic environment has been largely supportive of the sector and helped financial sector stocks outperform the S&P 500.
Financial sector stocks have gained more than 27% over the past year as measured by the S&P Financials Sector Index, topping the S&P 500’s 21% gain over that time.
Lenders have benefited from the higher interest rates, even though the higher rates have reduced the number of customers taking out mortgages. The financial services firms that also have an investment arm are making more money because the stock market’s rise over the past 12 months has encouraged more investors to use their services.
In this article, we’re focusing on undervalued financial companies that have strong balance sheets and a solid track record of performance. These are the ones that are expected to weather the storm when the next financial crisis hits. Read on to discover our picks of the 10 best financial stocks to invest in right now.
Best Financial Stocks to Buy in 2024
Let’s start with an overview of the best bank stocks and other financial company shares available today.
Berkshire Hathaway: Run by legendary investor Warren Buffett and known value investing and a long-term approach, the firm has holdings across various sectors, including insurance, railroads and utilities.
Blackstone: The US company is the world’s largest alternative asset manager. It manages more than $1 trillion of assets, while focusing on real estate, private equity, life sciences, hedge funds, and real assets.
BlackRock Inc.: The world’s largest asset manager, BlackRock offers investment management, risk management, and advisory services to institutional investors.
Main Street Capital: The US principal investment firm supplies long-term debt and equity capital to lower middle-market companies and debt capital to middle-market companies.
Deutsche Bank AG: Germany’s largest bank is a multinational financial services company with more than $1.3 trillion in assets and 1,421 branches worldwide. It has been in business 154 years.
Wells Fargo & Co.: A diversified financial services company with a large presence in consumer and commercial banking, Wells Fargo also offers investment banking, mortgage, and wealth management services.
JPMorgan Chase & Co. (JPM): The largest U.S. bank by assets, JPMorgan Chase is a global financial services firm offering investment banking, commercial banking, consumer banking, and wealth management.
Franklin Resources: The holding company for the Franklin Templeton family of more than 450 mutual funds has been active in growing through acquisitions, including Putnam Investments early this year.
SoFi Technology: The all-digital bank is broadening its offerings to other financial services. The company, which had its IPO in 2021, appears to be turning a corner with two consecutive quarters of profitability.
A Closer Look at the Top Financial Stocks to Invest in
Now, let’s take an in-depth look at the best financial stocks to consider for your portfolio in 2024:
1. Berkshire Hathaway – King of the Long-Term Holds
The holding company has a huge market capitalization of $862 billion. Early in May, it held its first annual meeting since Warren Buffett’s longtime vice chairman Charlie Munger died in November. Berkshire wholly owns insurance company GEICO, supply chain company McLane and railroad Burlington Northern Santa Fe Corporation, among others, and also has big stakes in other companies, including more than 20% of American Express, one of the major credit card companies.
In the first quarter, Berkshire’s operating profit rose 39% from a year earlier to $11.22 billion. The surge was led by an 185% year-over-year increase in insurance underwriting earnings. GEICO earnings alone jumped 174% over the same period last year to $1.9 billion. The company also saw a big rise for its energy division earnings, which jumped to $717 million from $416 million in the same period a year ago.
Buffett is holding onto a lot of cash while he is looking for his next acquisition target. At the end of the quarter, Berkshire Hathaway had $188.9 billion in cash, compared to $167.6 billion in the prior quarter. The company doesn’t pay a dividend but did buy back $2.6 billion worth of its own stock in the quarter.?
2. Blackstone – Getting Bullish on Commercial Real Estate
The alternative asset manager has more than $1.06 trillion in assets under management (AUM) and a market cap of $145 billion. It has been aggressive in adding commercial properties at a time when the sector has struggled. It owns more than 12,500 real estate assets and more than 230 portfolio companies.
In the first quarter, revenue jumped 167% from a year eralier to $3.68 billion. Earnings per share (EPS) was $1.11, compared to just $0.11 in the same period last year. Its first-quarter distributable earnings per share, what it uses to show the amount of cash available for dividends, was $0.98, compared to $0.97 in the first quarter of 2023. Much of the growth was attributed to Blackstone’s private credit and private wealth businesses.
Blackstone made a big splash when it agreed to pay $10 billion in April to buy Apartment Income REIT (NYSE: AIRC), taking the REIT private. Apartment Income had owned 75 rental housing communities in coastal areas, mostly in Miami and Los Angeles. The deal is expected to be completed by the end of the third quarter and is based on Blackstone’s confidence that commercial real estate is due to bounce back. Blackstone is also investing heavily in data centers and its subsidiaries own $50 billion worth of data centers globally, including those under construction.
The world’s largest asset manager, BlackRock, has roughly $10.5 trillion in assets under management (AUM), that’s 38% more than its closest competitor,?Vanguard. The company is also a leader among its peers in new investment ideas. It recently launched LifePath Paycheck Funds, that are part of 401(k)s, US retirement accounts with a tax advantage offered by employers, but adjust to lower risk assets as retirement age approaches. Following retirement, they serve like an annuity, guaranteeing a monthly check for life. BlackRock is also one of the first major investment companies to offer a Bitcoin ETF. It launched iShares Bitcoin Trust (NASDAQ: IBIT) in January.
In the first quarter of 2024, BlackRock had revenue of $4.73 billion, up 11% year over year, and EPS of $10.48 up 37%. The increase was due in large part to higher fees for investment advisory and administration fees.
BlackRock increased its quarterly dividend by 2% this year to $5.10, raising it for the 15th consecutive year. The only recent black cloud for BlackRock is that Wall Street money manager Boaz Weinstein, is trying to get investors to remove BlackRock as manager of six funds through his firm, Saba Capital Management,? citing what he says is BlackRock’s mismanagement and outsized fees.
4. Main Street Capital – Focusing on Smaller Companies, Strong Dividend
The internally managed business development company has shown huge growth since its initial public offering (IPO) in 2007, with net asset value (NAV) per share growing by 127% since the IPO. The company’s investments help support management buyouts, acquisitions, growth financings and other financing activities for private companies with annual revenues between $10 million and $150 million.
In 2023, Main Street had net investment income of $339 million (or $4.14 per share), up 14%. Its net asset value (NAV) per share was $29.20, up 8.7% from 2022. The company has a select niche of lending to smaller but financially sound companies.
Business development companies (BDCs) like Main Street that invest in other companies often have above-average dividends. Main Street increased its quarterly dividend by 5.8% last year. It has boosted its dividend by 118% since the fourth quarter of 2007. It also has paid an additional quarterly supplemental dividend for the past 10 quarters. BDCs can be riskier than other investments because they provide loans to smaller companies. It’s also worth noting that dividends from BDCs are taxed as ordinary income, unlike qualified dividends that receive a lower tax rate.
5. Deutsche Bank –? Thriving in a Struggling Environment
The German bank is well-diversified, so even at a time when interest-rate revenues were down pretty much across the board, it has thrived. It operates in four ways, as a corporate bank, an investment bank that focuses on currency, and as an advisor, a private bank for consumers, and its asset management arm, DWS.
In the first quarter, revenue was €7.8 billion ($8.4 billion), up 1% year over year, thanks mainly to an 11% growth in commissions and fee income. Deutsche Bank’s revenue has a compound annual growth rate of 6% since 2021 and the company is forecasting a CAGR of 5.5% to 6.5% through 2025.
Profit before taxes climbed by 10% compared to the first quarter of 2023, to €2 billion ($2.15 billion). Net profit also rose by 10% year over year, to €1.5 billion ($1.62 billion). It was the company’s highest net profit in a quarter since 2013 and its 15th consecutive profitable quarter. Deutsche’s board is recommending a dividend increase of 50% on its annual dividend to €0.45 ($0.48) per share.
The company reported first-quarter net income of €9.53 billion ($10.3 billion), up 6.7%, year over year and net income of €2.38 billion ($2.57 billion), up 42.8%. The company’s sales were aided by strong corporate and investment banking revenues, including a rise in fees.
It raised its dividend by 24% this year to €1.13 ($1.22), equaling a dividend yield of above 7%. The payout ratio is only 54%, so it’s well covered by earnings, leaving room for dividend growth. It also trades below eight times earnings, lower than its peers.
7. Wells Fargo – Time to Jump Back on the Bandwagon
One of the largest bank stocks in the world with a market cap of $213 billion, Wells Fargo serves 1 in 3 households in the US through nearly 4,000 branches. Its balance sheet has approximately $1.9 trillion in assets. The company trimmed 11,300 jobs, or 4.7% of its workforce in 2023. The cuts should pay off for the company once its severance costs have cleared.
In the first quarter, Wells Fargo had revenue of $20.9 billion, up 1%. EPS was $1.20, down from $1.23 in the same period a year ago, but up from $0.86 in the previous quarter. The company is seeing less interest income as high borrowing costs have led to fewer home mortgages. It reported net interest income of $12.2 billion, down 8% year over year. However, non-interest income rose by 17% over the same quarter a year ago, to $8.6 billion, due primarily to higher investment advisory fees and brokerage commissions.
Wells Fargo raised its quarterly dividend last year by 16% to $0.35 and authorized a new common stock repurchase program of up to $30 billion. Its dividend yield currently stands at 2.29%.
8. JPMorgan Chase & Co. –? Branching Out Into AI Index Funds
The world’s largest bank by market value with a market cap of $562 billion just introduced IndexGPT, an artificial intelligence-powered tool meant to make thematic investing easier. Its purpose is to allow for a broader selection of stocks before the more commonly known ones. The company said it’s part of a long-term process of integrating AI across the bank’s index funds.
The lender said first quarter revenue was $42.5 billion, up 8% year over year, and net income rose by 6% over the same period, to $13.4 billion. The banking giant saw AUM rise by 19% to $3.6 trillion after a strong first quarter.
While the firm’s consumer and community banking numbers were down, those were made up by improved numbers for commercial banking and investment banking, which saw a rise of 27% year over year. JPMorgan also recently raised its dividend by 10% to $1.15 per share, the 15th consecutive year of increasing it. The dividend yield is 2.35%.
9. Franklin Resources –? Securing Long-Term Growth Through Acquisitions
The mutual fund company that runs the Franklin Templeton family of mutual funds has more than $1.6 trillion in AUM and is known for being prudent in its investments. That said, it’s also willing to chase growth through acquisitions. It bought Putnam Investments early this year in a transaction involving $825 million worth of stock and $100 million of cash purchase. The takeover added $142 to AUM. In 2020, it bought Legg Mason for $4.5 billion, gaining $850 billion in AUM.
In its fiscal second quarter, Franklin had revenue of $2.15 billion, up 8% year over year, and it grew AUM by 13% to $1.64 trillion. EPS fell 54% from the same period last year to $0.23, dragged down by the Putnam purchase. Through six months, though, EPS was up by 1% to $0.71, and revenue was up 6% to $4.14 billion.
The company raised its quarterly dividend by 3.3% to $0.31 this year, lifting it for the 44th consecutive year. Its dividend yield is more than 5%.
10. SoFi Technology –? Digital Bank Diversifying Its Offerings
SoFi’s financial services and tech platform segments are helping drive earnings for the all-digital financial stock. Beside banking, it has services for stock and cryptocurrency trading, personal and mortgage loans, and wealth management services. It has strong customer loyalty, particularly among younger consumers, and that bodes well for SoFi’s growth.
In the first quarter, SoFi had $644.9 million in revenue, up 37% year over year, as its financial services and tech platform segment revenue climbed 54% compared with the same period last year. The company had $88 million in net income, up from a $34.4 million net loss in the first quarter of 2023.
The company is one of the fastest-growing banks in the world. It added 622,000 new members in the quarter and now has more than 8.1 members, up 44% year over year. While other banks are broadening their digital offerings, SoFi has a significant early mover advantage.
The financial sector has performed well over the past year, outperforming the S&P 500 index, as the chart below illustrates:
It’s hardly a monolithic sector as there are several types of financial stocks. Here are a few of the main categories:
Investment Firms:
Investment firms provide a variety of financial services to individuals and institutions. These services include investment banking, wealth management, asset management, and brokerage services.
Some of the better-known investment firms include JPMorgan Chase & Co. and BlackRock.
Bank Stocks:
Banks are the traditional lenders in the financial system. They take deposits from customers and use those deposits to make loans. They also lend money through credit cards. Banks also offer other financial services, such as checking and savings accounts, credit cards, and wealth management. There are retail banks focusing on individual customers and commercial banks that lend money to businesses. Investment banks offer advise corporations, governments, or small enterprises on how to raise capital, they help implement acquisitions and mergers, and sales of securities, like bonds.
Some of the best bank stocks include Wells Fargo, Deutsche Bank and even SoFi Technology, though it doesn’t have traditional brick and mortar branches.
Insurance Companies:
Insurance companies provide financial protection against a variety of risks. They offer a wide range of products, including life insurance, health insurance, auto insurance, and homeowners’ insurance, as well as other financial vehicles, such as annuities. Examples include Prudential Finance and MetLife, who compete directly in many areas, such as life insurance and retirement planning. While Berkshire Hathaway owns GEICO, its status as a financial stock is more due to the fact it is a holding company that owns, or partly owns, several companies and is seen as an investment company by the public.
If Interest Rates Remain High, What Does That Mean for Financial Stocks?
While bank, and financial services stocks have been buoyed by investors’ expectations that the Federal Reserve will cut interest rates soon, several Fed policymakers, including Fed chair Jerome Powell himself, have indicated that interest rates are likely to stay where they are for longer because of the economy’s resilience and persistent inflation.
The effect of this on bank and financial stocks is a mixed bag. Banks, for example, can earn more interest on loans when they can charge higher rates because their interest-rate spreads, the difference between what they pay on deposits and charge on loans, grows. Insurance companies and investment firms also benefit from higher yields on their fixed income investments.
However, if higher interest rates send the economy into a recession, that would negatively impact much of the financial sector. Also, high interest rates often lower loan volumes for banks because they can discourage the purchase of large-ticket items such as cars and homes. One other concern with high interest rates, is they could lead to more investors switching to higher-interest bonds or other financial vehicles, rather than financial stocks.
Are There Financial Stock ETFs?
There are a lot of exchange traded funds (ETFs) that collate banking and financial services stocks. ETFs can provide a diversified way to invest in the sector. One of the best-known is the Financial Select Sector SPDR Fund ETF, which provides exposure to US financial services. It’s a cap-weight index that avoids small-cap stocks.
Two others include the Invesco KBW Bank ETF (NYSE: KBWB) and the SPDR S&P Capital Markets ETF (NYSE: KCE). The first specializes in bank stocks, and it tracks the performance of the KBW Bank Index. The second includes the stocks of investment firms, banks, exchanges and data processing companies.
A good source of information on banks and other financial services stocks is AltIndex, a subscription-based service that uses alternative data and artificial intelligence (AI) to rate stocks. AltIndex updates its data throughout the day.
Start with the company’s ranking of best financial stocks, which rates companies using AI score, updated every half an hour with real-time share prices. The AI score relies on several datasets, to show which stocks are likely to be active. Stocks are scored from 1 to 100, simplifying the selection for investors. AltIndex relies on web searches, customer satisfaction ratings, social media, and app downloads, to help it analyze a company.
AltIndex has more than 10,000 members and provides more than 100,000 stock insights and alerts each day, and has a strong win rate of 75% from its AI stock picks.
You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well as many other useful features.
Financial stocks are crucial to our economy and some exposure to the sector makes sense for investors from a diversification standpoint. The top financial stocks make great long-term picks because they are stable companies, with billions, or trillions, at their disposal. Banks and asset managers also tend to deliver above-average dividends. Furthermore, it’s in the interest of governments to make sure financial companies don’t fail because of the repercussions to the global economy. We saw this at work during the financial crisis of 2008-09 when banks deemed too big to fail received $498 billion of rescue funds in the US alone.
With fewer companies providing pensions, 401ks, and other investment vehicles becoming more prevalent, financial companies are set to benefit as they make money when a trade is made, regardless of its outcome. It’s important to realize, though, that when the economy falters, financial stocks are among the first to feel the crunch.
The best financial stock to choose may depend on your own risk tolerance and financial strategy. However, Berkshire Hathaway stands out because it has such a solid track record and is coming off a strong quarter with double-digit growth. The company has plenty of cash to either expand or hunker down if the economy falters and despite all of that, it’s trading at less than 10 times earnings.
What are the advantages of financial stocks?
Buying financial stocks is a great way to improve your wealth because of the potential for strong growth, particularly when the overall market is doing well, regardless of which sector. These stocks can provide good dividend growth and are relatively stable because of the large size of most financial stocks.?
What are the disadvantages of financial stocks?
They generally don’t have a wide moat because what they do is easily duplicated by competitors. The industry is also quite sensitive to the health of the economy and financial stocks can quickly tumble in an economic downturn. They are also heavily regulated by governments, which can hamper profits and growth prospects.
I am an experienced journalist who has also worked as an editor and writer at the Savannah Morning News, Salt Lake Tribune, USA Today, Stars and Stripes, and The Motley Fool. I spent the first half of my career in sports journalism, but in recent years have switched to writing about my other passion, stocks, particularly healthcare, real estate and consumer staples stocks. I've won numerous journalism awards from the Associated Press and state press associations and have been a judge for the Georgia Sportswriters Association. I've written one non-fiction book, Just One More Time, about Georgia Southern football, and…
