Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. But worries about economic uncertainty and potential market volatility have kept sentiment in check, and over the past six months, the industry has tumbled by 12.2%. This drawdown was worse than the S&P 500’s 3.2% fall.
A cautious approach is imperative when dabbling in financials as many are sensitive to economic cycles and regulatory changes. On that note, here are three financials stocks we’re steering clear of.
Market Cap: $78.91 billion
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE:BK) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Does BK Give Us Pause?
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Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 4.7% over the last five years was below our standards for the financials sector
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Sizable asset base leads to capital growth challenges as its 3.2% annual tangible book value per share increases over the last five years fell short of other financials companies
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Below-average return on equity indicates management struggled to find compelling investment opportunities
BNY’s stock price of $114.53 implies a valuation ratio of 14x forward P/E. To fully understand why you should be careful with BK, check out our full research report (it’s free).
Market Cap: $251.5 billion
Founded in 1924 during the post-WWI economic boom by former JP Morgan partners, Morgan Stanley (NYSE:MS) is a global financial services firm that provides investment banking, wealth management, and investment management services to corporations, governments, institutions, and individuals.
Why Does MS Fall Short?
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Earnings per share lagged its peers over the last five years as they only grew by 9.3% annually
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Large asset base makes it harder to grow tangible book value per share quickly, and its annual tangible book value per share growth of 3.6% over the last five years was below our standards for the financials sector
At $158.68 per share, Morgan Stanley trades at 14.3x forward P/E. Dive into our free research report to see why there are better opportunities than MS.
Market Cap: $4.54 billion
Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE:NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.