Skip to content

Best Financial Stocks to Buy Right Now

Tom Cleveland trader
Updated 10 Jan 2023

When you think of financial stocks, the first thing that comes to mind are banks, but there are various other companies within the sector that provide financial services, such as payment-processing, accounting, asset management, insurance and brokerage companies.

new-recommended-broker-banner

YOUR CAPITAL IS AT RISK


Best Financial Stocks to Buy Right Now

In this article, we are going to take you through some of the best financial stocks you can buy right now.

What Is the Current Health of the Financial Sector?

The financial services sector of the stock market, often considered dull and boring by many investors, has actually demonstrated an innate ability to adapt to levels of uncertainty not seen in over a decade. As if the COVID-19 pandemic were not enough of an ordeal to manoeuvre through, geopolitical tensions and tenuous economic conditions are now threatening new challenges for the sector.

There will be more volatility, a certainty spurred on by more inflation, rising interest rates, supply chain slowdowns, geopolitical crises, and other unnamed forces. These will disrupt the relative stability that has been established after the pandemic. How do banks and their financial service provider brethren survive such consequences? Cutting costs is not the only answer. Using technology and becoming more innovative will surely be part of the solution.

sp500 financials sector index chart marketwatch
Chart courtesy of MarketWatch.com

The S&P 500 sub-index for the financial sector presented above reflects the strong bounceback that has occurred, primarily driven by financial banks. Yes, there was a COVID-19 dip in early 2020, but price points in the index soon began to march up a gradually sloping trendline, which has slowed a bit, as with the general stock market malaise during most of 2022. That steady march to higher profitability began after the financial crisis in 2008/09, a remarkable recovery by any measure.

According to McKinsey, profits in the banking industry, after lagging and remaining flat for several years, hit a 14-year high in 2022. Global revenues increased by $345bn, with expected return on equity falling between 11.5% and 12.5% for the period. Every key measure seemed to grow from net margins to interest income. Measures for capital adequacy also topped high watermarks, setting a record for Tier-1 capital ratios of 14% to 15%.


YOUR CAPITAL IS AT RISK


What Is the Outlook for This Sector Going Forward?

Not all banks across the globe are performing above average. Nearly half have profits less than their cost of equity, and the consequences vary from region to region. One high point of note is that banks in emerging markets are doing quite well. Unfortunately, the effects of COVID-19 and the crisis in Ukraine have not fully dissipated. They linger on, but these are not the only disruptive forces or shocks that this sector must endure and address in 2023.

The primary concern going forward is that as the economy weakens and gradually slows down, the differences between existing financial service providers regarding performance will be magnified. As interest rates rise, banks will benefit from higher margins, but these gains may not last for the long term. McKinsey believes that banks are facing a “long-term growth slowdown”, which will result in what its analysts term the “great divergence”.

What this means to you as an investor is that there will be winners and losers, and choosing your horses for the race will be more important than ever in this sector. The divergence will be geographic and will depend upon each institution’s operating model and how funding is secured. Banking shares will continue to trade at deep discounts, compared to fintech firms, for example, but this has always been the case due to slow growth and low profit expectations.

It is, however, not all gloom and doom in this sector. There will always be high performers that deliver the goods, but it will have more to do now with scale, geography, specialization, and customer segments and demographics. For example, many banks across Europe remain unprofitable. Large global banks will fare better, and infrastructure companies that focus on transaction processing will always be a good bet when the economy lags but shows signs of recovering. Payment companies are typically the first benefactors when economic shifts begin to go positive.  

Accepting the challenges and the divergences that could take place in 2023, we have selected our five best financial stocks in this sector that we believe are worthy of your consideration. The list below consists of two large global banks and three payment-processing companies. These five high-quality entities have proven time and again that they can adapt and provide investors with the returns they expect.

BEST FINANCIAL STOCKS TO BUY RIGHT NOW

JPMorgan Chase & Co. (NYSE:JPM)

JPMorgan is a global financial services provider and has always been very popular with investors. This banking behemoth is focusing on the future as well as the present, as investments, especially in technology, will be necessary for long-term profitability. Its information officer has announced that the firm is now hiring 2,000 engineers after having hired 5,000 software developers and data scientists.

JPMorgan Chase & Co jpm chart
Chart courtesy of eToro

JPM’s stock is presently trading at $132. Back in September, analysts at Deutsche Bank set a revised target of $155, when the stock was hovering around the $120 range, noting that recession fears may hamper the bank’s progress. The stock rebounded, but is more upside possible?


YOUR CAPITAL IS AT RISK


Bank of America Corporation (NYSE:BAC)

Another perennial favourite of investors in this sector is Bank of America (BofA). This global giant, like JPMorgan, has a long track record of turning things around when times are tough. In banking, quality does rise to the top. The bank has recently increased investment in minority-owned institutions by $100m.

bac Bank of America Corporation share price chart
Chart courtesy of eToro

If JPMorgan has a peer, it is BofA. BAC has also outperformed JPM in many ways since the financial crisis restructured the entire banking industry. When its share price hit $30 in September, analysts at Deutsche Bank took note and revised their price target to $45. Prices jumped on the news, but have settled back at $32.


YOUR CAPITAL IS AT RISK


Visa, Inc. (NYSE:V)

Visa tops our last trio of firms in the payment-processing business. Visa is not a bank, but it is responsible for the network that wires the world’s banking institutions together all the way down to the point-of-sale or to an ATM. It is a technology company and derives its revenues from payment transaction flows, which rise even during difficult times.

visa inc share price chart
Chart courtesy of eToro

As depicted by the chart, payment company shares are not nearly as volatile as banking shares. There are fewer detrimental factors in play. Visa volumes are now 39% over pre-pandemic levels; growth in the past year was 16%; and, more importantly, the total cards in the network increased by 6%. Visa shares trade currently at $213. If you’re interested, buy on the dips.


YOUR CAPITAL IS AT RISK


Mastercard, Inc. (NYSE:MA)

Although Mastercard is almost a carbon copy of Visa, but only half its size, this technology company has a reputation for tighter cost margins, especially in the marketing area. It has also benefited from a resurgence in cross-border travel and the fact that payment processors are often considered safe havens when economic uncertainty abounds.

mastercard share price chart
Chart courtesy of eToro

When MA shares were around $300, BMO Capital analysts raised their target for the future to $422. The stock now trades at $356. Does that sound like a bargain?


YOUR CAPITAL IS AT RISK


Block, Inc. (NYSE: SQ)

Block, Inc, formerly known as Square, is an American financial services company whose founder and CEO is Jack Dorsey of Twitter fame. This firm is much smaller than Visa or Mastercard, but it provides the connections and technology for small businesses to accept card payments.

block inc sq share price chart
Chart courtesy of eToro

Do you want to bet on a turnaround situation? Block’s stock is down more than 70% this year due to poor financial results. Analysts believe that it has achieved scale and could meet investor expectations by realizing its potential going forward. This one is risky, but has a potential high reward.


YOUR CAPITAL IS AT RISK


WHAT TO KNOW BEFORE INVESTING IN FINANCIAL STOCKS

Investing in financial stocks, or any type of stock for that matter, comes with risk. The stock market can be volatile, and depending on the company you choose and the market it’s in, the price can fluctuate enormously.

As mentioned at the beginning of this article, when most people think of financial stocks, they think of banks, and one thing to be aware of is that bank stocks are influenced by interest rate risk.

Banks will make profits from the interest paid on loans and mortgages, and so another point to consider when you are analysing bank stock is who they are loaning money to.

Finally, if you are investing in an investment company, make sure to consider the risk to its investments when analysing the stock.

HOW TO START FINANCIAL TRADING STOCKS ONLINE

Research Different Finance Companies

The first place to start is by researching the company you want to buy. What are the risks attached? Do you believe that it is undervalued or overvalued? And, most importantly, do you think that its share price will rise?

Find a Broker

The next step is to find a broker. There are hundreds, if not thousands, of brokers available for you to choose from. However, don’t worry – if you are unsure which broker to choose, we have done the hard work for you. Check out our list of the top stock brokers.

Open and Fund an Account

So, you have found a broker and know which stock you want to buy. The next step is to open and fund your account. The broker should have instructions to help you, but if not, you can check out how on our website.

Select and Buy Shares

Now, all you need to do is log into the broker’s platform, if you are not already, and select and buy the company’s shares.

the best financial stocks that you can buy right now

SUMMARY

Those are, in our opinion, the best financial stocks you can buy right now.

Always remember that there are risks attached to investing in the stock market, and prices can fluctuate.

It is essential to consider the bigger picture when investing – don’t just look to what’s happening now, but instead look at what could happen in the future and the prospects for the company going forward. Investing for the long term is recommended.

Of course, we can’t list all of the positive and negative aspects of an individual stock in one article. Still, we can assist in helping you to make profitable decisions when you decide to invest.

PEOPLE WHO READ THIS ALSO VIEWED:

Tom has over 30 years of experience in the payments industry, including serving as CFO for various Visa International entities from 1980 until 1999, retiring with the title of Group EVP and Treasurer.