The financial sector consists of not just banks but various other financial institutions ranging from insurance, wealth management, credit cards, capital markets, fintech, and various others. Financial companies have been grabbing investors’ attention due to their investments in technology, which has helped them widen their range of offerings to their customers.
The financial industry’s growth is being driven by the increase in financial transactions, fast payments, easy credit, and others. With inflation slowing in December and the jobs market remaining tight, the financial industry is expected to witness growth due to rising consumer spending.
Investors’ interest in financial stocks is evident from the Financial Select Sector SPDR ETF’s (XLF) 18.4% returns over the past three months. The financial services market is expected to grow at a CAGR of 7.5% to reach $37.48 billion in 2027.
Given this backdrop, it could be wise to buy fundamentally strong financial stocks AssetMark Financial Holdings, Inc. (AMK) and Regional Management Corp. (RM). On the other hand, Ally Financial Inc. (ALLY) should be avoided due to its weak financials and poor growth prospects.
Stocks to Buy:
AssetMark Financial Holdings, Inc. (AMK)
AMK provides wealth management and technology solutions. It offers an open-architecture product platform, as well as client advice, asset allocation options, practice management, support services, and technology to the financial adviser channel. It also provides an integrated technology platform for advisers to access a range of automated processes, advisory services, and curated investment platforms.
On December 15, 2022, AMK announced its acquisition of Adhesion Wealth, a leading provider of wealth management technology solutions to RIAs, RIA enterprises, TAMPs, and asset managers. CEO of AMK, Natalie Wolfsen, believes that the coming together of the two companies will allow them to serve advisors across a wider spectrum of practice profiles and growth enablement preferences and ultimately make a difference in the lives of more advisors and their clients.
In terms of the trailing-12-month ROTA, AMK’s 6.14% is 428.6% higher than the 1.16% industry average. Likewise, its 22.27% trailing-12-month EBITDA margin is 4.3% higher than the industry average of 21.34%. Furthermore, the stock’s 0.42% trailing-12-month asset turnover ratio is 121.3% higher than the industry average of 0.19%.
For the fiscal third quarter ended September 30, 2022, AMK’s total revenues increased 10.7% year-over-year to $154.66 million. The company’s adjusted net income increased 17.1% year-over-year to $34.97 million. Its adjusted EBITDA increased 17.6% year-over-year to $52.66 million. In addition, its adjusted EPS came in at $0.47, representing a 17.5% increase from the year-ago quarter.
AMK’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 32.2% and 16% year-over-year to $0.44 and $119.41 million, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 43.3% over the past three months to close the last trading session at $24.72.
AMK’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Financial Services industry, it is ranked #4 out of 48 stocks. The company has a B grade for Growth, Stability, and Sentiment.
Click here to see the additional POWR Ratings of AMK for Value, Momentum, and Quality.
Regional Management Corp. (RM)
RM, a diversified consumer finance company, provides various installment loan products primarily to customers with limited access to consumer credit. It offers small and large installment loans and retail loans. The company also provides insurance products, collateral protection insurance, property insurance, and reinsurance products.
On December 20, 2022, RM announced that it had commenced lending operations in Idaho, its 18th U.S. state. RM’s President and CEO, Robert W. Beck, said, “Our geographic expansion strategy continues to position us well to capture additional market share in a controlled manner and deliver smart and sustainable value to our shareholders.”
In terms of the trailing-12-month gross profit margin, RM’s 71.13% is 8.4% higher than the 65.60% industry average. Likewise, its 30.21% trailing-12-month EBITDA margin is 41.6% higher than the industry average of 21.34%. Furthermore, the stock’s 0.33% trailing-12-month asset turnover ratio is 73.1% higher than the industry average of 0.19%.
RM’s total revenue for the fiscal third quarter ended September 30, 2022, increased 17.9% year-over-year to $131.45 million. The company’s total assets increased 22.3% year-over-year to $1.61 billion. Moreover, its net EPS came in at $1.06, and its net income came in at $10.07 million.
Analysts expect RM’s EPS for the quarter ending June 30, 2023, to increase 3.9% year-over-year to $1.29. Its revenue for the quarter ending December 31, 2022, is expected to increase 10.4% year-over-year to $131.88 million. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 13.1% to close the last trading session at $32.
RM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #5 in the same industry. It has an A grade for Value and a B for Quality.
In total, we rate RM on eight different levels. Beyond what we stated above, we have also given RM grades for Growth, Momentum, Stability, and Sentiment. Get all RM ratings here.
Stock to Avoid:
Ally Financial Inc. (ALLY)
ALLY, a digital financial services company, provides various digital financial products and services to consumer, commercial, and corporate customers, primarily in the United States and Canada. It operates through four segments: Automotive Finance Operations, Insurance Operations, Mortgage Finance Operations, and Corporate Finance Operations.
ALLY’s trailing-12-month net income margin of 25.54% is 8.2% lower than the industry average of 27.80%. Its 1.11% trailing-12-month ROTA is 4.6% lower than the industry average of 1.16%.
For the fiscal third quarter ended September 30, 2022, ALLY’s net income attributable to common shareholders declined 60.2% year-over-year to $272 million. The company’s adjusted total net revenue declined 1% year-over-year to $2.09 billion. Additionally, its adjusted EPS came in at $1.12, representing a 48.1% decline from the prior-year period.
Analysts expect ALLY’s EPS and revenue for the quarter ended December 31, 2022, to decline 50.2% and 6.4% year-over-year to $1.01 and $2.06 billion, respectively. Over the past nine months, the stock has fallen 37.1% to close the last trading session at $27.04.
ALLY’s POWR Ratings reflect this bleak outlook. ALLY has an overall rating of D, which translates to a Sell. It is ranked #38 in the Consumer Financial Services industry. In addition, it has an F grade for Sentiment and a D for Growth and Momentum.
We have also given ALLY grades for Value, Stability, and Quality. Get all ALLY ratings here.
Want More Great Investing Ideas?
ALLY shares were trading at $26.92 per share on Friday afternoon, down $0.12 (-0.44%). Year-to-date, ALLY has gained 10.10%, versus a 3.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|ALLY||Get Rating||Get Rating||Get Rating|
|AMK||Get Rating||Get Rating||Get Rating|
|RM||Get Rating||Get Rating||Get Rating|