This is undoubtedly one of the toughest times for the stock market in years. Rising interest rates have been a thorn in the side for equity investors. However, there are hidden bull markets all the time, and perhaps the best financial stocks are what investors should watch closely.
Financials have performed impressively regardless of economic cycles. For banks, in particular, rising rates are a bullish indicator, but it may be the opposite for asset management companies. Therefore, investors should do their due diligence before placing their bets on financial firms.
It is important to have sound investment criteria based on profitability, sales expansion, valuation and income. Moreover, it would also be the right decision if investors could potentially find strong financial stocks that help make the most of every adverse situation.
From a myriad of choices right now, I’ve selected seven of the best financial stocks you should add to your portfolios. These investments tick all the right boxes and offer a unique blend of the investment criteria mentioned above.
|FSO||SFO capital company||$7.69|
|MSBI||Midland States Bancorp||$225.81|
SFO capital company (FSO)
SFO capital company (NASDAQ:FSO) is a small-cap financial services company with a track record of incredible financial performance with solid profitability. It has had a penchant for rewarding its shareholders and currently offers a jaw-dropping dividend yield of 13.50%.
The Company focuses on debt and equity financing for middle market companies. The majority of its portfolio is made up of floating rate debt instruments, which effectively protects it against declining assets in a high interest rate environment.
Its portfolio covers several segments of a company’s capital structure, protecting it from major credit risks. Consequently, its recent results are in line with its historical averages, despite troubling economic conditions as it trades at just 2.4 times forward sales estimates. This small cap gem cannot be ignored right now.
Midland States Bancorp (MSBI)
Midland States Bancorp (NASDAQ:MSBIlisten)) operates as a financial services holding company for Midland States Bank. It offers a range of financial services, including mortgages, retail banking, business services and cash management.
Midland has operated a stable business that has grown its revenue by approximately 10% over the past five years. Plus, it comes with an attractive dividend yield of 4.7%.
Recent results have been relatively strong and in line with its historical performance. Its loan portfolio experienced remarkable growth of 11% in the first half. However, it is likely to slow given rising interest rates.
Nonetheless, its acquisition plans should keep loan growth steady. It has a large floating rate loan balance, indicating single-digit earnings growth for the rest of the year.
Trinity Capital (TRIN)
Trinity Capital (NASDAQ:TRIN) is one of the most trusted names in the business development world, providing debt and equity financing to high-growth startups.
Its business has demonstrated a strong ability to thrive in difficult market conditions and has continued to pay significant dividends.
Business development companies fared significantly better than other financial firms in an environment of higher inflation. Venture capital funding typically slows in such an environment, increasing demand for risky debt.
Therefore, startups have had to turn to risky debt from companies such as TRIN. Reports have shown that venture capital debt volumes in the United States increased by an impressive 7.5% in the first half of the year. Additionally, TRIN’s investment commitments reached a record $460 million in the first half of this year.
Cincinnati Financial (CINF)
Cincinnati Financial (NADSAQ:CINF) is one of the leading property and casualty insurers in the United States. It represents about 1% of the total market, which is a considerable feat considering the fragmentation of the market. With more than $6 billion in annual premiums, it is among the top 25 insurers in its niche.
CINF has struggled over the past few quarters in a challenging operating environment. As a result, its stock price has fallen more than 30% in the past six months. Its lackluster performance of late has done little to slow the pace of shareholder rewards.
CINF is one of the most attractive insurance companies and one of the market leaders in its niche in the United States. She has one of the most attractive portfolios and has increased her payouts over 60 years. Therefore, with its shares trading at multi-year lows, it is best to load it now.
Itau Unibanco (ITUB)
Itau Unibanco (NYSE:ITUB) operates as a full-service bank and has been around for almost a century.
It is the first Brazilian bank in terms of turnover and has more than 4,000 physical branches and a presence in 18 different countries, mainly in Latin America.
Its lines of business are very diversified, including insurance, trading, credit and other related services. Diversity allows it to effectively limit its risk exposure and grow its asset base over time.
Recently, it has gone all out to expand its digital footprint. Its digital bank, called iti Itáu, targets a younger population that does not have a bank account.
So far, iti Itáu has been an incredible inclusion in its portfolio, adding 16.7 million customers in the first quarter of this year. Considering that 70% of Latin America’s population is unbanked or underbanked, Itaú’s digital branch has incredible growth ahead of it.
Signature Bank (SBNY)
Signature Bank (NASDAQ:SBNY) is a New York-based, full-service commercial bank with a customer-centric approach.
It manages a balanced loan portfolio which has helped mitigate risk to an acceptable level. It is therefore one of the few financial institutions to continue to perform well in these difficult times.
Its second quarter results were stunning, beating earnings per share estimates by 4%. Loan growth may have been the best in several quarters as the company maintained credit quality at the same time. Net interest income was $649.1 million for the quarter, a 42% improvement over the prior year quarter.
The improvement is due to the expansion of interest-earning assets. In addition, non-interest revenue increased 61% to $37.7 million due to higher service charges. SBNY also declared a generous dividend of 56 cents per share, returning a solid 1.43%.
Raymond James (RJF)
Raymond James (NYSE:RJF) is one of America’s most successful investment management companies.
Its banking division has performed consistently and its superior execution has allowed it to operate a robust margin profile. Over the past five years, its gross and net profit margins have averaged 94% and 15%, respectively.
As expected, its banking division, offering mortgages and commercial loans, benefited enormously from the high rates. RJF gives its lender more flexibility in what it can charge customers. Consequently, its results have been superb lately, posting another third-quarter earnings beat.
This is the eighth consecutive quarter the company has beaten analysts’ earnings estimates, which is an incredible achievement. As a result, RJF is one of the strongest investment management companies that continues to perform regardless of market conditions.
As of the date of publication, Muslim Farooque had (neither directly nor indirectly) any position in the securities mentioned in this article. Opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines