image

business forward

Best Financial Stocks Of January 2022 – Forbes Advisor - Forbes

The Best Financial Stocks of January 2022

FEATURED PARTNER OFFER

Visa Inc. (V)

Visa Inc. (V)

Visa Inc. (V)

Why We Picked It

The world’s largest financial stock by market capitalization, Visa Inc. is a multinational behemoth that processes trillions in payments each year and has issued roughly 3.6 billion credit cards. It also provides payment solutions for consumers and businesses and works with banks and other credit card issuers to launch new cards. From its headquarters in San Francisco, Visa supports customers in over 200 countries and territories.

Thanks to particularly strong revenue growth and higher profitability, Visa announced it would increase its quarterly dividend by 17.2% at the end of 2021.

FEATURED PARTNER OFFER

JPMorgan Chase Co. (JPM)

JPMorgan Chase Co. (JPM)

JPMorgan Chase Co. (JPM)

Why We Picked It

JPMorgan Chase is the largest bank in both the United States and in the world by market capitalization. Named after John Pierpoint Morgan, a famous 19th-century banker and financier, the New York City-based company has played a leading role in shaping the U.S. and global financial industry.

JPM provies investment banking services and commercial banking under the Chase brand name. While JPMorgan Chase’s revenue took a hit during the Covid pandemic, its shares lost much less than other financial stocks because of its strong balance sheet and diverse revenue streams.

FEATURED PARTNER OFFER

Bank of America (BAC)

Bank of America (BAC)

Bank of America (BAC)

Why We Picked It

Headquartered in Charlotte, N.C., Bank of America is the second largest bank in the U.S. Like JPM, it offers commercial banking services to individuals and small businesses as well as investment banking. During the financial crisis of 2008, Bank of America purchased the investment bank Merrill Lynch, which it now uses to run wealth management services.

BAC’s earnings and revenues both beat expectations in 2021, thanks to solid loan growth and a particularly impressive performance from its investment banking fee income. During this stretch, it also grew its reserves, putting it in a stronger financial position going forward.

FEATURED PARTNER OFFER

Mastercard Inc. (MA)

Mastercard Inc. (MA)

Mastercard Inc. (MA)

Why We Picked It

Mastercard is a leading payment processing and credit card company, second only to Visa. It provides payment solutions to individuals, businesses and governments while also working with banks and other card issuers to set up new programs. In addition, it offers data analytics based on transaction records to furnish businesses with spending trends and insights.

MA has begun moving into the cryptocurrency space, perhaps most notably from its recent acquisition of CipherTrace, an intelligence firm working to prevent fraud and protect digital assets.

FEATURED PARTNER OFFER

Industrial and Commercial Bank of China (IDCBY)

Industrial and Commercial Bank of China (IDCBY)

Industrial and Commercial Bank of China (IDCBY)

Why We Picked It

The Industrial and Commercial Bank of China, commonly referred to as ICBC, is China’s largest bank and the largest financial company outside of the United States.

From its headquarters in Beijing, ICBC provides banking services to both individuals and companies, with 680 million individual banking clients and 8.6 million corporate clients. It has won awards from publications like Forbes, Fortune and The Banker for being one of the best banks in the world. Even though the Covid-19 crisis was a challenge for banking operations, it still grew its operating income and net profits in 2020.

FEATURED PARTNER OFFER

PayPal (PYPL)

PayPal (PYPL)

PayPal (PYPL)

Why We Picked It

PayPal  is a fintech company specializing in digital payments and ecommerce launched by several famous tech icons, including Elon Musk and Peter Thiel, during the ’90s internet boom. Today, the company is one of the largest names in Silicon Valley as well as the largest fintech company by market cap. PYPL currently processes over $1.2 trillion in payments per year.

PYPL’s stock soared during the pandemic as people moved even more of their shopping online, but shares have recently dipped as those same people prepare for a post-pandemic world. Despite the hit, PayPal maintains a strong grip on the payments market, thanks in part to its ownership of other top payment apps like Venmo.

FEATURED PARTNER OFFER

Wells Fargo Co. (WFC)

Wells Fargo Co. (WFC)

Wells Fargo Co. (WFC)

Why We Picked It

Wells Fargo is the third largest bank in the U.S. by market cap. Established in 1852 during the California Gold Rush, Wells Fargo went on to open branches throughout the West (and the world), and the company still maintains its headquarters in San Francisco. WFC offers individual, small business and commercial banking through its thousands of bank branches.

In 2020, the company not only had to deal with lost revenue due to the pandemic, but it also faced a multibillion fine from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) for opening accounts for customers without their permission. Despite these missteps, WFC beat earnings expectations in 2021 and has the reserves it needs to take advantage of an economic rebound.

FEATURED PARTNER OFFER

China Merchants Bank (CIHKY)

China Merchants Bank (CIHKY)

China Merchants Bank (CIHKY)

Why We Picked It

China Merchants Bank, commonly called CM Bank, launched in 1987 in Shenzhen, the first region where China began opening its economy to trade and capitalism. CM Bank is now China’s second largest bank in terms of market cap.

The bank is considered a leader in new banking technology in China, having launched the country’s first online banking platform, its first dual-currency credit card and its first smart investment advisory product. It spends 1% of its operating revenue on fintech technologies and is working to create China’s first digital bank.

FEATURED PARTNER OFFER

Morgan Stanley (MS)

Morgan Stanley (MS)

Morgan Stanley (MS)

Why We Picked It

Since its founding in 1935, Morgan Stanley has become one of the most iconic brands on Wall Street. It is the largest standalone investment bank in the world by market cap and offers services like sales and trading for investments, wealth management, market research and access to capital markets for corporations.

MS generated record revenue in 2020 and doubled the size of its quarterly dividend in 2021, thanks to strong performances from its traditional services as well as from its recent acquisitions, like E-Trade.

FEATURED PARTNER OFFER

China Construction Bank (CICHY)

China Construction Bank (CICHY)

China Construction Bank (CICHY)

Why We Picked It

The Chinese government founded the People’s Construction Bank of China in 1954 to oversee the use of government funds for construction and infrastructure projects. As China’s economy opened up and became less government controlled, the bank evolved into China Construction Bank.

Today, China Construction Bank operates as a full-service financial services organization for individuals and companies. It has hundreds of millions of customers and operates in 31 countries and regions, including China. Based in Beijing, China Construction Bank promotes its strong government ties, which helps it be a trusted part of the national financial system.

*All data is sourced from Morningstar, current as of Jan. 3, 2022.

Understanding Financial Stocks

Financial sector stocks belong to companies that offer investment banking, consumer banking, lending, insurance or credit card services. While banks are a big part of the story, they’re hardly the only sort of companies active in this key stock market sector. The financial sector also includes insurance companies, investment firms, financial tech (fintech) startups and service providers for the industry. Some of the key categories in this sector include:

  • Banking. Banks form the foundation of the financial sector, providing deposit accounts and loans to businesses and consumers. There are commercial banks, which mainly work with individuals and small businesses; investment banks, which work with large institutions and high-net-worth investors; and banks that do both.
  • Insurance. Insurers sell and manage various types of insurance policies, like health, life, property and liability.
  • Financial services. Companies that provide services like credit cards, investment management and accounting are considered financial services firms. This also includes support services for the sector, like credit bureaus and bond ratings agencies.
  • Fintech. Fintech covers companies working on new technologies for the financial sector, such as innovative payments companies and firms that develop cryptocurrency technology.

Advantages of Financial Stocks

Solid long-term performance. Over the past 30 years, the financial sector’s earnings have grown significantly faster than the economy as a whole, allowing financial companies to pay above average dividends to their shareholders and creating solid price-to-earnings ratios. While past performance is no guarantee of future success, it can be helpful to look backward when gauging investment opportunities.

More regulated after the Great Recession. The financial crisis of 2008 exposed problems in the financial sector that governments around the world have worked to address with regulation. Today, financial firms are required to take more measures to avoid trouble, like holding higher minimum capital levels to protect against losses. This reduces their risk compared to the sector in the past.

Chance for government support in recessions. The health of the financial sector has a direct bearing on the health of the global economy. As a result, financial firms can count on special support during a recession or a financial crisis. When banks ran into financial trouble during the Great Recession, for instance, governments bailed many of them out.

Benefit from rising interest rates. Today, interest rates are near historic lows. When they go up, however, banks, credit card companies and other lenders could increase their earnings by charging higher rates. Insurance companies can also earn more from their fixed income investments as bond interest rates go up.

Innovation from fintech. Financial sector stocks have benefitted from innovations like blockchain, mobile payment apps and robo-advisors, laying the groundwork for more sector growth.

Risks of Financial Stocks

Cyclical performance during recessions. Financial stocks are cyclical and sensitive to economic downturns. When people and businesses are struggling, they take out fewer loans, invest less and spend less on their credit cards, reducing revenue for financial companies. Not to mention, they may stop making payments on their existing loans.

Loan defaults can strain balance sheets. If a person or business cannot pay back their loan and defaults, the lender ends up writing off the debt. While this is part of a financial company’s regular business model, should things go really bad, defaults can spiral and put an otherwise solid company into bankruptcy, like when the housing bubble popped and turned into the 2008 financial crisis.

Disruption from technology. While the fintech innovations are exciting for new up and comers, they could disrupt established banks and other financial companies, adding an extra risk for their long-term prospects.

Government regulation can reduce profits. The financial sector is heavily regulated, and it’s possible for the government to take further action, like requiring banks to increase their capital reserves even more. While these actions make the sector safer, it hurts their profits because this is extra money they can’t lend out or invest.

How to Buy Financial Stocks

If you already have a taxable brokerage account or a tax-advantaged retirement account, like an individual retirement account (IRA), buying financial stocks is easy. But if you don’t have an IRA or a brokerage account, check out Forbes Advisor’s list of the best online brokerages.

Before you buy, research the financial sector and get familiar with ins and outs of this key industry. Keep in mind that individual stock picking is a risky business. Returns are not guaranteed, and the performance of individual stocks can be highly volatile—even among the biggest companies in the financial sector.

Read More: How To Buy Stocks

Experts recommend that non-professional investors take a diversified approach to investing. Rather than buying individual stocks, check out exchange-traded funds (ETFs) and index funds. Diversified funds let you benefit from industry gains while avoiding the pitfalls of single stocks. You can find the right fund using screeners available on your brokerage platform.

The author(s) held no positions in the securities discussed in the post at the original time of publication.

Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.

Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.