When the pandemic first hit our shores and it became clear that a shutdown would be necessary, consumer financial stocks were hit hard as there was an expectation that consumer spending would decline and defaults would spike.
However, this has turned out to not be the case. The economy did better than expectations, the stimulus was massive enough to send consumer spending to new highs and savings levels as well. Household leverage ratios are at low levels which bodes well for the expansion’s duration.
If the labor market keeps improving and wages continue trending higher then the sector should keep outperforming. Within the sector are a variety of options. Companies like Synchrony Financial (SYF) take on credit risk, while consumer financial stocks like Visa (V) make money from each transaction.
SYF is one of the country’s top consumer financial services businesses, providing a litany of credit products through retailers, merchants, buying groups, manufacturers, industry associations, and others at the regional and national levels. The company is the nation’s largest provider of credit cards. Furthermore, SYF’s solutions for financing, payments, and analytics are quite innovative. However, SYF’s primary focus is on enhancing customers’ financial flexibility with credit cards.
SYF has a forward P/E ratio of 7.66. This is a comparably low ratio that indicates SYF is underpriced. The stock is currently trading about $3 away from its 52-week high of $50.96. SYF has a 52-week low of $21.90. The stock has a 1.82 beta so it probably won’t soar or plummet should the market make a major move.
SYF has a B POWR Ratings grade, meaning it qualifies as a Buy. The stock has Bs in the Momentum, Quality, and Sentiment components of the POWR Ratings. Click here to find out how SYF fares in the Value, Growth, and Stability components of the POWR Ratings.
Of the 50+ publicly traded companies in the Consumer Financial Services space, SYF is ranked in the top five, slotting in at number four overall. You can find out more about the stocks in this space by clicking here.
The top analysts are bullish on SYF, setting an average target price of $56.12 for the stock. If SYF hits this price target, it will have popped by more than 20%. The highest analyst price target for the stock is $63. The lowest analyst target price for SYF is $43. In the past 28 weeks, the analysts’ average target price for SYF has increased by more than $18.
V provides a highly efficient retail electronic payments network across the globe. V’s transaction processing services are revered by financial institutions along with merchant clients. Risk-averse investors will be happy to learn V has no legal liability in the event of a credit line default. It is the banks that V works on behalf of that have legal liability should a client default on a line of credit.
V is a POWR Ratings disappointment with a C rating. Though the stock has B grades in the Quality, Sentiment, and Stability components of the POWR Ratings, it disappoints in the Value and Growth components. Click here to find out how the stock grades out in these final two POWR Rating components.
Of the 51 stocks in the Consumer Financial Services space, V is ranked in the top 20, slotting in at number 18. You can learn more about the Consumer Financial Services sector by clicking here.
The analysts have high hopes for V, setting an average target price of $268.62 for the stock. If V hits this price, it will have increased in value by more than 12%. The highest analyst target price for the stock is $297. The lowest analyst target price for V is $240. It is interesting to note the analysts’ average price target for V has increased $23.48 across the prior 98 days.
Which is the Better Buy?
SYF is the better play moving forward. SYF qualifies as a Buy thanks to its B POWR Rating grade. V is a Hold for the time being. Add SYF to your portfolio today, hold it through the economic rebound and you should make money.
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V shares were trading at $247.79 per share on Friday morning, up $3.65 (+1.50%). Year-to-date, V has gained 13.63%, versus a 17.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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