The stock market is booming. With the conclusion of the first quarter, markets are off to one of their fastest starts in decades.
When prices go up that tends to mean that the people handling capital also make more money. In other words, it’s a great time to be looking at financial services stocks.
Many investors understandably wrote the sector off. There were a couple of challenging years given the disruptions from the pandemic followed by the surge in interest rates. Some analysts were concerned about a crash in either the housing or regional banking markets as well.
These concerns have largely cleared up as the Federal Reserve has moderated its formerly aggressive monetary policy. Asset prices are strong, housing is holding up, and consumer sentiment is improving. All this points to strong times ahead for financial services stocks. Here are three that should be on your radar today.
Visa (V)
For a while there, some investors were doubting the credit card companies. Visa (NYSE:V) stock struggled during the pandemic as it lost out on its most profitable transactions, the cross-border ones which involve foreign exchange.
Additionally, a surge in FinTech companies along with cryptocurrency and blockchain back in 2021 created the idea that there would be much more competition to the credit card networks. Fast forward to 2024, however, and almost all these issues have been alleviated.
The global economy is open for business. Visa is processing more transactions than ever, and it is back to its usual profitability levels as well. Many of the more prominent FinTech competitors have flamed out. The ones that remain have found it more challenging to obtain capital and continue to compete with Visa and Mastercard (NYSE:MA).
It turns out building a robust international payments network is harder than it may seem. And while cryptocurrency prices are soaring once again, there’s not much evidence of cryptocurrency payments disrupting much in the commerce area.
Simply put, the global economy is growing. Transaction volumes are up. And Visa’s brand remains as dominant as ever. Meanwhile, over time, consumers are continuing to shift from cash to plastic in developing countries. All this points to ever higher profits and an ensuing rising share price for V stock.
Broadridge Financial Services (BR)
Broadridge Financial Services (NYSE:BR) is a specialty financial company that came about as a spin-off from Automatic Data Processing (NASDAQ:ADP).
ADP built a proxy services company, but decided that it was not core to its operations and thus Broadridge was spun off in 2007. Broadridge remains the dominant player in proxy services — that is to say shareholder communications and shareholder voting — with roughly 80% market share. Broadridge is also building ancillary revenue streams, such as software and tools for managing the back office at brokerages and wealth management firms.
Broadridge is not a particularly glamorous firm, but it has achieved steady earnings and dividend growth since becoming a public company. Analysts are forecasting roughly 10% annualized earnings per share growth going forward.
With the stock market humming and total assets and financial activity on the rise, there will be more opportunity for Broadridge in the months and years to come.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) is in some ways the opposite of Visa. PayPal shares skyrocketed in 2020 and 2021 as investors appraised the new economic landscape. It became clear that e-commerce was going to grow quickly, and online subscriptions and services enjoyed a golden age of adoption.
This was a great environment for PayPal and other payments firms. However, as the temporary crisis-induced growth tailwind dissipated, prices have plummeted across the payment stocks space. PayPal is no exception with the stock losing as much as 80% of its former peak level.
PayPal shares were almost undoubtedly overvalued at $300 per share in 2021. But the pendulum has swung too far today. PYPL stock looks like a bargain at 13 times forward earnings. The company is throwing off tons of cash which can be used for share buybacks or to invest into other related products and services.
Despite all the negative headlines, PayPal continues to grow earnings and revenues have continued trending higher. Analysts foresee additional growth in 2024 and beyond.
PayPal may not be as promising as it seemed three years ago. But the share price has collapsed to such an extent that buyers at today’s levels should make a considerable profit when sentiment improves for this beaten down financial services stock.
On the date of publication, Ian Bezek held a long position in BR and V stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
