Financial stocks are in a sweet spot thanks to the rising interest rate environment, as rising interest rates help financial companies, primarily banks, and insurers, expand their top line. With the potential increase in interest in the foreseeable future, I wanted to evaluate Visa Inc. (V), AssetMark Financial Holdings, Inc. (AMK), and MainStreet Bancshares, Inc. (MNSB) to see how well-positioned they are to capitalize on the backdrop.

Although inflation fell for the seventh straight month annually in January, there was a 0.6% sequential and a 5.4% year-over-year increase in the Personal Consumption Expenditure (PCE). Moreover, the jobs report surprised Wall Street as unemployment fell to 3.4%, and nonfarm payrolls increased by 517,000, surpassing the estimate of 187,000.

The Fed closely tracks the Personal Consumption Expenditure (PCE) to gauge inflation, and the rise in PCE is expected to push the Fed to keep raising the benchmark interest rates. This could be beneficial for financial companies.

Financial services stocks have gained immense popularity since the pandemic as they changed the way individuals pay, receive, borrow, or save money. The pandemic provided the much-needed push for digital transactions.

The financial services industry is expected to grow at a CAGR of 7.5% to reach $37.48 trillion by 2027. Investors’ interest in financial stocks is evident from the iShares U.S. Financial Services ETF’s (IYG) 7% returns over the past six months.

With the Fed likely to raise the federal funds rate above 5%, let’s see why adding V, AMK, and MNSB to your watchlist could be wise.

Visa Inc. (V)

V is a global payments technology company that enables digital payments between customers, merchants, financial institutions, enterprises, strategic partners, and government agencies. It also administers VisaNet, a transaction processing network that allows for the authorization, clearing, and settlement of payment transactions.

On December 14, 2022, V pledged to invest $1 billion in Africa over the next five years to advance resilient, innovative, and inclusive economies across the continent. V’s entry into Africa will help capitalize on the rise in digital payments.

V’s 50.28% trailing-12-month net income margin is significantly higher than the 3.02% industry average. Likewise, its 67.14% trailing-12-month EBIT margin is significantly higher than the 6.06% industry average. Furthermore, the stock’s 50.02% trailing-12-month levered FCF margin is 641.1% higher than the 6.75% industry average.

V’s net revenues for the first quarter ended December 31, 2022, increased 12% year-over-year to $7.94 billion. The company’s operating income rose 6.6% year-over-year to $5.09 billion. Its non-GAAP net income increased 17% from the prior-year period to $4.58 billion. In addition, its non-GAAP EPS came in at $2.18, representing an increase of 21% year-over-year.

Analysts expect V’s EPS and revenue for the quarter ending March 31, 2023, to increase 10.3% and 7.9% year-over-year to $1.98 and $7.76 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 10.8% to close the last trading session at $219.06.

V’s POWR Ratings reflect its 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 49 stocks. It has an A grade for Quality and a B for Stability and Sentiment. Click here to see the other Growth, Value, and Momentum ratings.

AssetMark Financial Holdings, Inc. (AMK)

AMK provides wealth management and technology solutions in the United States. It offers an open-architecture product platform, client service, asset allocation options, practice management, support services, and technology to the financial adviser channel.

On December 15, 2022, AMK announced the completion of its acquisition of Adhesion Wealth, a provider of wealth management technology solutions to RIAs, RIA enterprises, TAMPs, and asset managers. AMK’s CEO Natalie Wolfsen said, “AssetMark and Adhesion are officially united in pursuit of our shared mission to empower growth-focused advisors to deliver better investor outcomes while successfully growing their practices.”

“Our combined suite of purpose-built solutions allows us 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,” he added.

AMK’s 28.90% trailing-12-month EBITDA margin is 43.1% higher than the 20.20% industry average. Likewise, its 23.87% trailing-12-month EBIT margin is 2.8% higher than the 23.22% industry average. Furthermore, the stock’s 0.43x trailing-12-month asset turnover margin is 126.9% higher than the 0.19x industry average.

AMK’s total revenue increased 14.3% year-over-year to $164.13 million for the fourth quarter ended December 31, 2022. The company’s adjusted EBITDA increased 38% year-over-year to $52.88 million. Also, its adjusted net income increased 38.9% year-over-year to $34.28 million. In addition, its adjusted EPS came in at $0.46, representing an increase of 39.4% year-over-year.

For the quarter ending March 31, 2023, AMK’s EPS and revenue are expected to increase 38.9% and 24.9% year-over-year to $0.54 and $132.65 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 63.7% to close the last trading session at $31.25.

AMK’s POWR Ratings reflect these solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

It has an A grade for Sentiment and a B for Growth and Stability. Again, it is ranked #2 in the same industry. Click here to see the other ratings of AMK for Value, Momentum, and Quality.

MainStreet Bancshares, Inc. (MNSB)

MNSB operates as the bank holding company for MainStreet Bank that provides various banking products and services for individuals, small to medium-sized businesses, and professional service organizations.

MNSB’s 36.82% trailing-12-month net income margin is 34.5% higher than the 27.37% industry average. Likewise, its 14.75% trailing-12-month Return on Common Equity is 31.7% higher than the 11.20% industry average. Furthermore, the stock’s 1.39% trailing-12-month Return on Total Assets is 18.1% higher than the 1.17% industry average.

For the fiscal year ended December 31, 2022, MNSB’s total interest income increased 30.6% year-over-year to $83.85 million. Its net income available to common shareholders increased 22.5% from the prior-year period to $24.52 million.

The company’s EPS came in at $3.26, representing an increase of 23% year-over-year. In addition, net interest income after provision for loan losses increased 23.6% year-over-year to $67.61 million.

For the quarter ending March 31, 2023, MNSB’s EPS and revenue are expected to increase 65.6% and 38.2% year-over-year to $1.06 and $22.60 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 18.6% to close the last trading session at $29.05.

MNSB’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

It has an A grade for Sentiment and a B for Growth, Value, Momentum, and Stability. It is ranked first in the Consumer Financial Services industry. To see MNSB’s rating for Quality, click here.

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V shares were unchanged in premarket trading Friday. Year-to-date, V has gained 5.65%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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